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When are My IRA Withdrawals Penalty Free?

The surest way to make tax-free withdrawals is to wait until you are older than 59½, but there are a few other ways. If you are 59½ or older, you can make penalty-free withdrawals. Of course, you will need to pay income taxes on the amount you withdraw from your Traditional IRA. There is a 10% penalty assessed by the IRS on early withdrawals (withdrawals made before age 59½) and these are generally not a good idea. Continue reading...

How Do I Measure My Risk Tolerance?

Your risk tolerance should be a measure of how willing you are to absorb losses in your portfolio. Studies in behavioral science show that investors loathe losses about two and a half times more then they enjoy gains. Everyone can likely relate to this stat. But, to be a successful investor that achieves long-term equity like returns, one has accept some level of risk inherent in the stock market. Continue reading...

What is a Warrant?

A warrant is an agreement giving the holder the right to buy (or sell) a certain number of shares of a company. Warrants are often requested or granted when a company engages in a loan from private investors - it will give the lenders the opportunity to buy and own shares in the company if its stock appreciates or if the opportunity seems attractive. If the company fails to grow and deliver, the warrants can simply go unused with no financial impact for the holder. Like options, there are warrants that confer the option to buy shares (call warrants) and those that allow the holder to sell (put warrants). Continue reading...

What are Net Sales?

Net sales are the amount of sales that will actually be counted towards a company’s bottom line, meaning they account for goods returned or damaged goods. If a good is fully delivered to a customer and any return policy is expired, the good can be booked as a net sale for the company. Therefore, net sales gives a more accurate picture of the actual sales generated by the company, or the money that it expects to receive. Continue reading...

What does “Buying on Weakness” Mean?

Instead of waiting for confirmation of reversal, “buying on weakness” means to go ahead and buy a long position (or cover a short position) while a stock is in the middle of a downtrend, in the hopes that it will reverse soon and the preemptive move will allow you to capture the entire upside. Upswings can happen very quickly, and failure to prepare for them can cost investors a lot of money. Buying on weakness is intended to put the investor in a position for maximum gains, as well as preventing losses on a short position. This is one part of the “buy on weakness / sell on strength” mantra, which is essentially the same thing as “buy low / sell high”. Continue reading...

What is the Federal Housing Administration (FHA)?

The Federal Housing Administration (FHA) is to lenders what FDIC insurance is to savers; it protects lending institutions from mortgage defaults. By protecting lenders, the FHA was begun with the intention to stimulate the housing market. The FHA was established in 1934 in an effort to stimulate the construction and purchase of new homes by offering insurance protection to the institutions (banks and mortgage companies) who make mortgage loans. Continue reading...

What is the Federal Reserve System?

What is the Federal Reserve System?

The Federal Reserve System was established by the Federal Reserve Act of 1913, which created a network of reserve banks that could help to prevent economic meltdowns by serving as a regulator and a source of funds. There are 12 regional Federal Reserve Banks which monitor banks in their jurisdiction and make loans when necessary. The Federal Reserve System is sometimes referred to as one bank, but it is in fact a network of 12 banks with 24 branches, overseen by a Board with members nominated by the US Government. Continue reading...

What is a foreign fund?

What is a foreign fund?

A foreign fund is a mutual fund that invests solely in companies abroad and does not invest in corporations owned in the US. Owning foreign companies can be a very good diversification strategy and is considered a core holding in the portfolio of most investors. Foreign exposure means that if the US economy hits a rough patch, you may have a hedge in the foreign fund if the companies or markets in other parts of the world are not entirely correlated. Continue reading...

What is a commodity index?

What is a commodity index?

Commodity indexes are also called commodity price indexes, and they are informational services which reflect the price action in a designated commodity or basket of commodities. Indexes are often tracked by mutual funds or ETFs, and these can be confused with the actual index. Indexes are computed and published by market research firms. They can serve as benchmarks against which the performance of a specific asset or an investment portfolio can be compared, or they can serve as the model that index funds seek to emulate. Continue reading...

What is the Three Falling Peaks (Bearish) Pattern?

What is the Three Falling Peaks (Bearish) Pattern?

The Three Falling Peaks pattern forms when three minor Highs (1, 3, 5) arrange along a downward­-sloping trend line. This pattern often emerges at the end of a rising trend, when a security slowly rolls over. It potentially indicates sellers moving ­in to replace buyers, which pushes the price lower. If the price breaks out from the bottom pattern boundary, day traders and swing traders should trade with the DOWN trend. Consider selling the security short or buying a put option at the downward breakout price level. To identify an exit, compute the target price by subtracting the pattern’s height (maximum price minus minimum price within the pattern) from the breakout level ­ the lowest low. When trading, wait for the confirmation move, which is when the price moves below the breakout level. Continue reading...