What is a Limited Liability Company (LLC)?
A limited liability company (LLC) establishes a separate entity from the sole proprietor or partners in a business which shields them from some of the liability associated with the business. An LLC is a business entity that creates a distinction between the business’s assets and liabilities and the assets and liabilities of the owner or partners. Sole proprietors and partnerships who do not file for this distinction leave themselves and all of their personal assets at risk, in the event of a lawsuit or bankruptcy. Continue reading...
How Can I Establish a Money Purchase/Profit Sharing Plan?
Like other qualified plans, these need a written plan document and investments to fund. A written plan document must be established and distributed to all employees notifying them of the plan and of all pertinent details, in language they can understand. Plans must be established by December 31 of the year for which contributions will be made, and, since the contributions come from the employer for both of these, the employer has at least 8 months of the following year to meet funding requirements. Continue reading...
What Are the Contribution Limits for my Self-Employed 401(k)?
There is a high possible contribution you can make to your own 401(k), but you still have to pay attention to the limits. As of 2016, you may contribute up to $53,000 annually to your Self-Employed 401(k), plus a $6,000 catch-up contribution if you’re over 50. If your spouse is also on the payroll, you are allowed to have a combined contribution of up to $106,000, or $118,000 if you’re both over 50. Continue reading...
What is the Fiduciary Standard?
The Fiduciary Standard stipulates that an advisor must place the client’s best interests first. The best way to understand the fiduciary standard is to think in terms of another standard, called the suitability standard. The suitability standard says that a broker/advisor need only recommend investment products that are “suitable” for the client - but those investments do not necessarily have to be in the client’s best interests. Continue reading...
What are foreign exchange reserves?
Central banks and sometimes other banks and large corporations, hold reserves in foreign currencies as a hedge against exchange rate risk and perhaps to satisfy the liquidity needs of positions they may have in Forex derivatives. Central banks and large institutions which engage in international trade and Forex transactions will find it prudent and sometimes necessary to hold substantial reserves in a foreign currency. Central banks frequently engage in various types of Forex transactions to balance their exposure to trends, risks, and other effects in the currency market. Continue reading...
What is a Run Rate?
Run rate is a term that can be applied to a certain type of accounting and management estimation or to the depletion of equity options. The first kind is when a current metric (such as sales revenue for a quarter) is assumed to extend out to the end of the year or accounting period for estimation or valuation purposes. The second kind uses the average dilution from the past three years, generally, to show the effect that convertible securities are having on the share price of a company. Continue reading...
Day trading with RSI
The Relative Strength Index (RSI) is a momentum oscillator developed by Welles Wilder. In the RSI, the average gains and average losses over a specific time period (such as 14 days) are divided to calculate the Relative Strength, then normalized into the Relative Strength Index (RSI), which is range bound between 0 and 100. The RSI typically fluctuates between values of 70 and 30, with higher numbers indicating more momentum. According to this indicator, a security with an RSI over 70 (out of 100) can be considered overbought, while a security with an RSI under 30 (out of 100) can be considered oversold. 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 a bear straddle?
A Bear Straddle is another name for a short straddle, in which the investor writes (goes short) on both a call and a put, for the same strike price and expiration, on the same underlying stock. A short straddle can be called a bearish position because the investor believes that the underlying will basically hibernate until expiration. As long as the price of the underlying remains close to the strike price, the investor can make a profit, with the maximum profit being the premium collected from the sale of the options which have expired worthless. Continue reading...
What is the adaptive market hypothesis?
The Adaptive Market Hypothesis uses theories of behavioral economics to update the aging Efficient Market Hypothesis. There have been many debates surrounding the Efficient Market Hypothesis and its validity, and a lot of research over the last 15 years or so has been done which suggests that behavioral finance holds many of the keys to an accurate “universal theory” of the markets. A marriage between the two schools of thought has given birth to the Adaptive Market Hypothesis, coined in 2004 by Andrew Lo of MIT. Behavioral and evolutionary principals come into play when theorizing about the large-scale behavior and adaptation of humans in a system. Continue reading...