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What is Private Equity?
In the world of finance, private equity is a relatively new industry whereby private companies finance other businesses through direct investment, often in exchange for equity in the company and in some cases, decision-making capabilities. Private equity companies generally use capital of the principals or of high net worth investors to strategically invest in growing companies that need growth capital or seed capital to expand operations. Continue reading...
What is Directional Movement Index (DMI)?
The Directional Movement Index (DMI) combines the average directional index (ADX), plus directional indicator (+DI), and minus directional indicator (-DI) into one graph that depicts the strength of positive or negative market forces. By plotting the directional indicators together with the ADX line, traders can get a sense of overall movement and determine a trend’s strength and direction. The DMI is a useful illustration of a key point: the ADX is most useful when combined with other indicators to determine whether it makes sense to trade with a trend. The ADX normally depicts three lines in order to give traders an accurate depiction of both the strength and direction of trends: the Plus Directional Indicator (+DI) and Minus Directional Indicator (-DI), as well as the ADX lines. The DIs indicate trend direction, while the ADX depicts trend strength. Continue reading...
How to use the average directional index in trading?
Trend traders can use the Average Directional Index (ADX) technical indicator to spot and confirm the strength of a trend in a security, then combine the ADX reading with other indicators to determine whether it makes sense to trade with the trend. Click here to view the current news with the use of other Technical Indicators Technical Indicators are charting tools that appear as lines on charts, or as other kinds of graphical information, and serve as guidelines for buying and selling opportunities. Traders use technical indicators like the ADX to make predictions about future prices. They verify how well a specific indicator works for a particular security, often by calculating the odds of success under similar market conditions to guide their actions. Continue reading...
What is the Cost of Goods Sold?
The Cost of Goods Sold, or COGS, represents the overhead associated with the materials and labor, which were needed to produce the goods sold during a given period. The COGS calculation is only concerned with the production costs of a good, and does not take distribution and sales force costs into account. It will always include the direct materials cost and direct labor cost for each item, but indirect overhead associated with production, such facility costs, are distributed between Inventory and COGS, according to Generally Accepted Accounting Practices (GAAP). 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 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...
What is Investment Property?
Investment property is real estate that an individual or entity owns without the intention to directly use it, but rather to benefit from its ownership. Investment property is not directly used or inhabited by the owner. Its purpose is to provide income through rental or lease, or to be sold at a later time after the property has appreciated. Sometimes this involved building upon the property, or otherwise renovating or improving it. The property might be commercial or residential, with multiple tenants or a single one. Continue reading...
What kind of hedge funds exist?
Hedge funds can employ many strategies and focus on virtually any kind of investing style or market. They also have the flexibility to change their strategy as they see fit. Morningstar and other services will group hedge funds into categories and provide benchmarks based on their average performances. As of 2016, there are over 12,000 hedge funds, and over half of those are required to report to the SEC. Continue reading...
What is a Foreign Portfolio Investment (FPI)?
When foreigners purchase shares of domestic companies that represent less than 10% of the voting shares in the companies, and the investments are not those of company expansion or market penetration, but rather to add diversification to the foreigners’ investment portfolios, it is known as Foreign Portfolio Investment (FPI). FPI is the passive investing that foreigners do in a domestic market. It is separate from investments that companies might make into joint ventures or purchase facilities or acquire controlling interest in a domestic company — all of those are active investing and are usually called Foreign Direct Investment (FDI). FPI can be done by individuals or institutional investors. Institutional investors might run a mutual fund or pension fund in another country. Continue reading...
What are foreign deposits?
Foreign deposits are taken in by international branch locations of US-based banking institutions. Banks are not obligated to pay FDIC premiums on these deposits. Foreign deposits are placed by customers into a US-based bank branch which is located in international locations. Because it is outside of Federal jurisdiction, banks are not subject to the same capital reserve requirements and do not have to pay FDIC insurance on the deposits. Continue reading...
What is Form 1099-R?
IRS Link to Form — Found Here Sources of retirement plan income, such as pensions, annuities, and IRAs, will be associated with a 1099-R filing. The form is filed by the company making the distribution. The taxpayer uses the information on it for when filing income taxes. The IRS receives Form 1099-R from the companies making distributions from retirement plans. They have categorized all annuity contracts as retirement plans by default, so those are included, as are pensions, profit sharing plans, other forms of employer-sponsored retirement plans, cash-value life insurance distributions, and individual retirement accounts (IRAs). The company making the distribution sends the 1099-R to the IRS and the account owner. Continue reading...
How do I Invest in commodities?
Commodities can be acquired through brokerage services that can access the commodities markets, or you can buy the stocks of companies that bring commodities to market. Investors can also gain exposure to commodities through mutual funds and ETFs that focus on them. There are a few ways to invest in commodities. One simple way is to purchase the stock of companies that produce commodities. You can also invest through futures contracts, which are agreements to buy a certain amount of a commodity at a certain price at some point in the future; this is the primary way that commodities are traded. They can also trade at spot, which means at the current price, or through the use of other derivative instruments, such as options on futures contracts. Continue reading...
What is Form 706 GS (D): Generation Skipping Transfer Tax Return for Distributions?
IRS Link to Form — Found Here Form 706 is the Estate Tax return, and it has a section concerning Generation-Skipping Transfers. 706 GS (D), specifically, is the form which 706: GS (D-1) is the corresponding form if the transfer is associated with a trust, which is filed by the trustee. The Generation-Skipping Tax attempts to prevent an estate from transferring too many assets directly to grandchildren instead of children for the purpose of shielding heirs from estate taxes. The form for reporting Generation Skipping Transfers is 706 GS (D), where 706 is the Estate Tax Return filing. Continue reading...
What Investment Choices Do I Have in My IRA?
Every institution that can be your IRA trustee will offer different options within the IRA. IRA is a tax designation which can be placed on an account at various institutions that offer a compliant list of investment options. Some can be as simple as a CD characterized as an IRA at a bank or credit union. Investment institutions can offer a wide variety of investment choices in an IRA: stocks, bonds, mutual funds, CDs, annuities, and so on. Margin trading is not allowed in IRA accounts, so you might not be able to use options or other hedging strategies in your IRA. Continue reading...
What is index investing?
The main idea behind index investing is that markets are efficient, and, especially with the low fees of indexed funds, it can be a winning strategy. Index investing is a simple strategy of choosing the indices which reflect your investment beliefs and offer diversification, buying mutual funds or ETFs that track these indices, and holding them for a long period of time. The last 10 years have seen the propagation of index funds for any specific market, industry, country, commodity, etc. Continue reading...
What is foreign investment?
Foreign investment is the act of an individual or corporation, or institutional investor, acquiring a large stake in a company, which may be a controlling or non-controlling interest. When it is a controlling interest, it is known as Foreign Direct Investment (FDI). Foreign corporate expansion in terms of newly acquired domestic facilities and equity interest in domestic companies tends to be monitored by domestic governments. Continue reading...
What is a Living Will? (in-depth)
A living will is sometimes called an advance directive or a medical directive, and it specifies a person’s wishes regarding life-prolonging medical procedures and other end-of-life issues. If a person is in a coma, for instance, it is intended to provide instructions for their care, including whether or not to use oxygen or “feeding tubes” to keep them alive. This might require a Do Not Resuscitate (DNR) waiver of some kind, which tells medical staff not to intervene if the person is dying. The living will is different than the “will” that most people are familiar with, which is a Last Will and Testament, stipulating the person’s wishes for their estate after he or she has died. Continue reading...
Can I Hold Bitcoins and other Cryptocurrencies in an IRA?
It is becoming increasingly popular today to have an IRA just for bitcoin. If you create a Self-Directed IRA, you can hold almost anything you want within it, if you can find a custodian and trustee willing to facilitate it. This isn’t overly difficult to do since many new companies are jumping at the opportunity to facilitate bitcoin and cryptocurrency IRAs. Examples of assets that can be held within a self-directed IRA include real estate, cryptocurrencies, precious metals, intellectual property, private businesses, hedge funds, private equity, tax lien certificates, livestock, and more. Continue reading...
Should I invest in commodities?
Investing in commodities has lately become accessible to even small retail investors via ETFs. There are now literally hundreds of different commodity ETFs, linked to various individual commodities and baskets (such as agricultural baskets, commodity indices, etc.) These instruments are very complex and sometimes do not reflect the behavior of the underlying commodity. While investing in commodities may significantly diversify your portfolio, it requires profound knowledge of the behavior of the underlying assets. Continue reading...
What is alpha in investing?
Alpha is a risk ratio which measures gains or losses relative to a benchmark, indicating whether an investor is being compensated with a return greater than the volatility risk being taken. Alpha’s counterpart, the Beta figure, measures how closely an investment follows movements in the market as a whole or, when examining mutual funds, how similarly the funds move to their relevant indexes. Alpha is expressed as integers, which can be translated into percentage points above or below a benchmark for a time period. Investors are interested in higher Alpha figures: the larger the positive Alpha, the more the fund in question has outperformed its benchmark. An Alpha of 2 indicates a performance 2% greater than its benchmark; inversely, a -2 Alpha would denote 2% underperformance. Continue reading...