Which is Better for Me – a Roth or Regular 401(k)?
Some 401(k)s give participants the ability to make after-tax contributions, which raises the question of which fits better into a person’s retirement plan. One advantage to Roth 401(k)s is that they do not have income limits which may have barred certain high earners from contributing to a Roth IRA in the past. Down the road in retirement, it may be advantageous for someone with significant savings to be able to take some withdrawals that do not increase his or her income tax bracket. Continue reading...
What is FICA?
FICA (Federal Insurance Contributions Act) taxes are handled by the Social Security Administration, as they are payroll withholdings that go toward Social Security and Medicare funds. Most people will have half of their FICA paid by their employer, but self-employed people must pay it all on their own, which is called the “Self-Employment Tax.” FICA is a tax on employees and employers that funds the Social Security and Medicare programs of the United States. Continue reading...
What is a Registered Investment Advisor (RIA)?
An RIA is an asset manager that is registered with the SEC (in whatever state(s) they operate) and complies with certain rules and regulations. RIAs typically earn their revenues through management fees, which are almost always based as a percentage of assets under management — the average management fee is between 1% - 2%. Having management fees as a percentage of assets allows for the interest of both parties to align - as the assets grow, so does the nominal amount of fees the RIA earns. Continue reading...
What is the Lifetime Learning Credit?
The Lifetime Learning Credit is a federal tax credit to offset expenses associated with higher education. There is no age limit and the credit can be applied to part-time student courses, even if it is only one class. The credit is for 20% of the related expenses up to a maximum of a $2,000 credit per household. Tax credits are a dollar-for-dollar reduction of taxes due. The Lifetime Learning Credit can be used for higher education expenses, regardless of the age of the student, but there is a household limit per year. 20% of educational expenses up to a household maximum of $2,000 can be applied as an income tax credit. The credit exists to make it easier for Americans to increase their skill-set and education. Continue reading...
What is the Falling Wedge (Bearish) Pattern?
The Falling Wedge pattern forms when prices appear to spiral downward, with lower lows (1, 3, 5) and lower highs (2, 4) creating two down-sloping trend lines that intersect to form a triangle. Unlike Descending Triangle patterns, however, both lines need to have a distinct downward slope, with the top line having a steeper decline. This pattern is commonly associated with directionless markets since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
What is the Rising Wedge (Bullish) Pattern?
The Rising Wedge pattern forms when prices seem to be spiraling upward, and two upward sloping trend lines are created with the price hitting higher highs (1, 3, 5) and higher lows (2,4). The two pattern lines intersect to form an upward sloping triangle. Unlike Ascending Triangle patterns, however, both lines need to have a distinct upward slope, with the bottom line having a steeper slope. This pattern is commonly associated with directionless markets, since the contraction (narrowing) of the market range signals that neither bulls nor bears are in control. However, there is a distinct possibility that market participants will either pour in or sell out, and the price can move up or down with big volumes (leading up to the breakout). Continue reading...
What is the Risk/Return Trade-Off
There are investments which have the potential for very high returns, but they will always be that much riskier than the lower-yielding alternatives, and this is part of the risk/return trade-off. The relationship between risk and return is a positive linear relationship in most theoretical depictions, and if an investor seeks greater returns, he or she will have to take on greater risk. This is called the risk/return trade-off. For more stability and less risk, an investor will have to sacrifice some potential returns. Continue reading...
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...
What is a Variable Cost?
When budgeting for companies, some expenses are fixed overhead and some are variable, which depend on the amount of work being done. The direct cost of materials and labor are a good example of variable costs that will fluctuate with production levels. There may be an equation that the company can use to reliably predict these variable costs, but they are not fixed costs. From an accounting perspective, of course, these costs would be in separate sections. Fixed costs include warehousing, depreciation, insurances, rent, taxes, salaries, and so forth. These can be put into the budget before anything else happens or any orders have been taken for the year. The variable costs must be taken into account on the fly. Continue reading...
What is the Difference Between a Growth and Value Stock?
Growth stocks tend to be younger companies focused on using capital to fuel more growth, whereas Value stocks have perceived safety through consistent earnings, cash on balance sheets, and dividends. Neither growth nor value stocks are the best performers for all time, and the reality is that over long stretches of time, performance tends to revert to the mean. Categorically, growth stocks tend to be younger companies that focus capital on investing in expanding operations - hiring new personnel, hiring more employees, entering new markets. Continue reading...