Why Should I be Extremely Careful with Commodities ETFs?

There are some things to keep in mind when investing in commodities and their ETFs. Most commodities trading revolves around who owns a hard asset and when. ETFs occupy a space in the commodities world that is somewhat unique. An ETF such as the Crude Oil Index does not physically buy millions of barrels of oil and store them. It buys financial instruments which theoretically should reflect the price of oil. Continue reading...

How Does the Money in My 401(k) Get Invested?

Employers sponsoring 401(k) plans are required to give employees the information and ability to manage their own accounts, using the investment options provided to them by the plan administrator and custodian. Sometimes employers and 401(k) custodians will provide employees with simplified systems by which to determine what kinds of investments appeal to them, and how they would like to allocate their portfolio in pursuit of their retirement goals. Continue reading...

Who Pays for Medicare?

Who Pays for Medicare?

Taxes pay for the entirety of Medicare part A. For the optional or supplemental policies which fall under the Medicare moniker, a regular premium may be due, but it’s still better than what premiums would look like if there were no Medicare. The Social Security Administration (website—here), which is funded by taxes deducted from your paycheck under FICA, or as part of the “self-employment tax,” administers both Social Security and Medicare. Continue reading...

What is IRS Publication 525, Taxable and Nontaxable Income?

IRS Link to Publication — Found Here This IRS Publication describes the distinction to be made between taxable income and nontaxable income. Many types of individual income are described and many sources of non-taxable income are illustrated. Gross income is usually reduced by standard or itemized deductions to arrive at a portion of income which is taxable. The amount that was left out of this equation is called nontaxable income. Continue reading...

What is Par Value?

Par value is the nominal value of a security (such as a stock or a bond) that is typically indicated on the certificate of ownership. Par value is most often associated with bonds, and refers to the amount that will be returned to the investor at the bond’s maturity. Par value of bonds is generally $100 or $1,000. Bonds traded on the open market are not generally bought and sold at par value, as they typically trade at a premium or a discount to par. Bond prices are influenced by interest rates, and have an inverse relationship with them. Continue reading...

What is a Certificate of Deposit?

A Certificate of Deposit, commonly referred to as a CD, is a financial product that essentially pays risk-free interest (though typically at very low rates). CDs are typically offered by banks and credit unions, and usually span in duration from one month to 5 or 10 years. They are FDIC guaranteed up to $250,000, so customers may generally consider them risk-free. But because there is very little risk to purchasing a CD, they also typically pay very low annual interest rates. Continue reading...

Is there such a thing as the “pre-holiday effect?”

Is there such a thing as the “pre-holiday effect?”

Pre-Holiday price fluctuations have been observed in many instances, but there a difference of opinion as to whether the markets are higher or lower just before holiday. Pre-Holiday Seasonality is the idea that prices will rise or fall before a holiday weekend in which the market will be closed for a day. When researching this phenomenon you may find colloquial wisdom stating that prices always rise before a holiday, but in actuality most of the evidence points the opposite direction: prices are most likely to close lower the day or two before a holiday weekend, and may remain low the day after the holiday, but this provides a possible opportunity to ride the upswing. Continue reading...

What is a currency basket?

What is a currency basket?

Currency baskets are composed of weighted amounts of certain currencies. The most common use of a currency basket is as a benchmark for certain economic analysis, but it can also be used as a unit of account where an international organization has constituents that use various currencies. A basket of currencies is a weighted index of various currencies which serves a specific purpose as a benchmark or as a unit of account. Continue reading...

What is quantitative analysis?

What is quantitative analysis?

The attempt to represent events and phenomena mathematically and to thereby make reality more understandable is called quantitative analysis. To quantify something from the real world, an analyst will translate the factors and variables present in a real event into a coding system which will allow it to be represented in mathematical or computational symbology. The quantitative analysis that follows will attempt to create formulas and test them for external validity and replicability. Continue reading...

Can I Take a Lump-Sum Distribution From my Cash-Balance Plan?

Absolutely – this is what separates them from traditional pension plans. Yes. Cash balance plans maintain a hypothetical account balance for the participant, and the ending balance is known and guaranteed from the time the contributions occur. Many participants opt to take this lump sum balance and move it into their own IRA, or just to pay the taxes on it and be done with the plan. The other option is to have the balance paid out in the form of a life annuity, with equal payments for the rest of your life like a traditional pension. This option can be more risky simply because it is forfeiting the safety and security of monthly payments for life, in favor of a one-time distribution. Continue reading...