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How do I determine the right mix of assets?

How do I determine the right mix of assets?

Asset allocation tools and Monte Carlo simulators are available through broker-dealers and online services. You may wish to construct your own asset allocation, but there are asset allocation programs available which can take a lot of the uncertainty out of the process. The most famous method for analyzing and testing an allocation involves the so-called Monte Carlo simulation. This simulator helps you determine what would have happened with your portfolio if you were invested according to a particular mix of assets. Three main parameters you should consider for each asset class are: the asset’s historical performance, its volatility, and its correlation to other asset classes. Continue reading...

What Rights Does Owning Shares of Corporation Give You?

Shareholders of a company are part-owners of the company, and they are entitled to two things: voting for board members, and participation in earnings. Owning shares (even one single share!) of a publicly-traded corporation entitles you to the right to vote in elections for the Board of Directors, as well as the right to receive a proportional amount of all the profits of the company. These rights apply to common stock, which is generally the kind of stock traded on exchanges. Of course, you also have the right to sell your shares on the stock exchange at any time, in what is known academically as the Secondary Market. Continue reading...

What is a Discount Broker?

Discount Broker is a financial organization that places trades at a discount to a full service broker, and also often will serve as a custodian for assets. With the onset of online trading platforms, the discount brokerage industry has seen plenty of growth over the last few years. In many cases, however, a discount broker will not offer any investment advice - hence the discounted price for trading services. An investor that wants a lot of personalized service should probably consider a full service broker over a discount broker, since a discount broker literally only focuses on trade execution and will not provide additional services, like research and advice. Continue reading...

What is Liability?

As a general statement, a liability refers to some form of currency (money or service) that is owed from one party to another, typically in the form of debt or a balance outstanding. On a balance sheet, a company’s liabilities would include its loans, accounts payable, outstanding debt. Short-term liabilities are generally those owed within a year, whereas long-term liabilities might stretch beyond that. Continue reading...

What is Off-Balance-Sheet-Financing?

A company might use this maneuver in order to keep their debt to equity levels in check. The most frequently used types of off-balance-sheet-financing are joint ventures, research and development partnerships, and operating leases. Continue reading...

What is a Buying Hedge?

Hedging against future price risk was the main reason Futures contracts came into being. If an investor or a business knows that they need to acquire an asset or security at a future date, they might go ahead and agree to a price and have it in writing on a Futures contract. A futures contract means that an item has been sold at a stated price, and only awaits settlement at a future date. This will protect them from the risk that the price will move unfavorably in the future, and it will allow them to balance books and plan a budget with more certainty. Futures contracts are standardized and traded on exchanges. Continue reading...

What is backtesting?

What is backtesting?

Analytical financial theories and trading strategies can be “backtested” by applying them to historical data. Backtesting is to simulate what it would have been like to use a certain strategy or indicator in the past. Because markets are more complicated than a simple algorithm, such as an assumed future rate of return, it is preferable and somewhat more dramatic to use actual historical data for testing. There is an abundance of historical market data available to those who would like to use it for backtesting a theory, strategy, or indicator. Continue reading...

If I Leave My Job, Will I Still Get a Pension?

You may not be vested in a pension if you lave too early, or you may have to accept a lower payout. This depends on how many years you worked for your employer, and other factors which are described in your pension plan document. In some cases, the employer can specify a minimum number of years you have to work for the company in order to receive a Pension. Otherwise, the amount you receive will be vested in portions over a few years, until you will be able to leave your job and keep 100% of the accrued Pension benefits. Continue reading...

What is a foreign transaction fee?

What is a foreign transaction fee?

Credit card companies and banks generally charge an additional percentage for all purchases made with a card in a foreign country. If you’re traveling abroad, you may want to find another way to pay. Most credit card companies and bank debit cards will charge an additional percentage on transactions made abroad, to help them pay the cost of clearing the transaction with international institutions. This is sometimes called a currency conversion fee. Continue reading...

What is a Spin-off?

A spin-off is when a division or subsidiary of a company is separated from the parent corporation and starts to offer its own shares. The term can also colloquially refer to a situation where a group of talent leaves the larger company to start their own firm doing similar work as they used to do. As far as the SEC is concerned, the definition of a spin-off must include the shareholders of the parent corporation being offered a substantially proportionate amount of shares in the new company. Continue reading...