What are Load Mutual Funds?
“Load” mutual funds are those which have a fee structure that includes a front-end or back-end sales charge. All funds have expenses, but not all funds have loads. Loads are sales charges that are part of the fee structure of a mutual fund. Each mutual fund will typically offer a few types of shares classes to its investors, and the main difference between the share classes are their fee structures. There are front-end loads, which come out of your initial investment and can be up to 5%. Continue reading...
How are Social Security Benefits Computed?
Social Security retirement benefits are computed by finding the average monthly income of a worker during the highest-earning 35 years of employment, and then it plugs that amount into a formula for to determine their full benefit at Normal Retirement Age (NRA). A person may then choose to take benefits before or after NRA, with applicable reductions or additions. There are different equations for spousal benefits, survivor’s benefits, and maximum family benefits. Continue reading...
What is the Rectangle Top (Bullish) Pattern?
The Rectangle Top pattern forms when the price of a security is stuck in a range bound motion. Two horizontal lines (top: 1, 3, 5) and (bottom: 2, 4) form the pattern as the security bounces up and down between support and resistance levels. Depending on who gives up first buyers or sellers the price can breakout in either direction. This pattern is commonly associated with directionless markets. Usually the pattern performs better when there is a strong uptrend leading into the formation. Continue reading...
What is the Debt to Capital Ratio?
The debt-to-capital ratio is a measure of a company’s leverage that looks at total debt compared to total capital (shareholder equity + debt). This measure of leverage is not a globally accepted accounting practice, therefore it is important for analysts to learn exactly what is being included by the company as their debt and equity in calculating the ratio. Generally speaking, a higher debt to capital ratio indicates that the company is financing more of its operations and needs through the debt markets versus with equity. Comparing debt-to-capital ratios amongst companies within the same sector or industry can be a useful exercise. Continue reading...
What is Future Value?
Future Value is the hypothetical value of an investment at a specific date in the future. The future value (FV) of an investment or business is a calculation used in several types of planning and accounting. In a Time Value of Money (TVM) calculation, the Future Value is often the starting point, and the interest rate that will be earned in the meantime is called Discount Rate, and is discounted by the number of years of periods back to the present time. This allows investors to see the Present Value (PV), which is a lesser, discounted amount from the future value, and gives us the premise for the Time Value of Money, which is that “a dollar today is worth more than a dollar tomorrow.” Continue reading...
What is currency arbitrage?
Currency arbitrage is when the value of a triangle of currency pairs does not cross-correlate, and a bank or large institution is able to exploit the temporary discrepancy for a profit before the market equalizes again. Arbitrage is when an investor (usually an institutional investor) can pick up something in one market that has a higher value in another market, perhaps due to lower liquidity or information flow in the secondary market, and can move goods or securities across these markets and make a profit. Continue reading...
What is Volume?
Volume is a count of trades in a security or market, or their derivative instruments and can be indicative of trends and sentiment. Volume is the number of trades in a security or market in a given time. Trade volume is important because it helps analysts pick apart the factors driving a trend or get an idea of the strength of a trend. Potential buyers and sellers can push the Bid and Ask prices around at will, hypothetically, but a trade only occurs when the buyer and seller transact business; also, even only a minimal number of trades can move prices around, but this is not indicative of a strong trend — a few trades more and the price is where it was before. Continue reading...
What should I look for in a good “Rent or Own a House” calculator?
The decision process to rent or own a home can be made a little easier with a good rent-or-own calculator. In the ideal “Rent or Own a House” comparison calculator, you should be able to input the following: an assumed appreciation rate for residential real estate in the area, the cost of maintaining an owned home, rent increases, and potential tax benefits of owning versus renting. Make sure to use realistic or even pessimistic assumptions on the inputs, because once time has passed there will be no way to fix overly optimistic assumptions. Continue reading...
What is a Yield Curve?
A yield curve is an illustration of the current duration-to-yield relationship for bonds of the same credit rating but different durations. As a general rule, the longer the duration of the loan, the more risk you take on (since you don't know what might happen with that corporation in the future), and therefore, you demand a higher reward (i.e., higher coupon). The yield curve for any bond (not just the US Treasury Bonds) changes daily based on many economic and market factors. Continue reading...
What are Core Mutual Funds?
Core mutual funds represent the middle ground between Value and Growth, but are not the same as Blend funds. Core Mutual Funds are in between Growth and Value funds. In other words, companies in their portfolio have Price to Earnings ratios which are higher than those of Value companies but lower than those of Growth companies. This category is essentially based on the 9-box Morningstar categorization system, which separates equity funds into Small, Mid and Large Cap on the vertical axis and Value, Core, and Growth on the horizontal axis. Continue reading...