What are the Risks Associated With Stocks?
Stocks are inherently risky, and an investor has risk of capital loss. As with most things in life, no risk yields no return. Theoretically, the greater the risk, the greater the potential return. A new company which has not established itself yet will have a decent chance of crashing and an investor can lose all invested capital. But — what if it takes off? Your potential gains in such a situation are potentially vast. There is a point when the rate of increased return per degree of risk begins to slow down. Continue reading...
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...
Is there a Benefit to Self-Managing?
An investor may be able to save money in management fees self-managing, but there are also limitations and risks. Perhaps the biggest risk is the role that emotion can play in investing. Even the most skilled professionals are tempted by emotions in the market - big declines like the financial crisis can make one second-guess whether the market has hope of recovering, and big gains can create confidence that leads to less prudent risk-taking. Continue reading...
What is the Housing and Economic Recovery Act (HERA)?
HERA was passed in 2008 in response to the subprime mortgage crisis that rocked the entire economy and left many Americans underwater on their mortgages. People would need to refinance their mortgages and this bill approved the funding to help that happen. The Housing and Economic Recovery Act did several things, all aiming to help American consumers and lending institutions get out of the recession left by the subprime mortgage bubble in 2008. Continue reading...
What is the XRP Escrow Lock-Up?
Ripple does not have a mining rewards system like Bitcoin for releasing new coins into the market, so they’ve enacted a plan to put 55 billion XRP into escrow accounts. Prior to 2017, Ripple did not offer any guarantees to coin-holders concerning the rate at which Ripple would release XRP coins into the wild, and this made investors nervous. At any moment, Ripple theoretically could have dumped the approximately 60 billion remaining XRP into the market and washed out any value that the investors... Continue reading...
What is Accrued Interest?
Accrued Interest applies to a bond or loan, accounting for the interest that is calculated per diem for the time between payments. Accrued Interest is the amount of interest that has "built up" between the last payment and the present, with regards to bonds and loans. If a bond is sold from one person to another, and the corporation or municipality that issued the bond pays out an interest payment at regular intervals, the sale price will have to factor-in the "accrued interest" since the last distribution, and the buyer will have to pay the seller for the accrued interest due while the latter held the bond. Continue reading...
What does it mean to 'exercise an option?'
An options contract does not affect the underlying securities until the option is exercised, meaning that the option or buy or sell the security is utilized. Many options trades do not directly touch the underlying securities – investors worldwide make plenty of money buying and selling the options contracts themselves. Options have time-value inherent in them based on how the underlying securities are priced and when the options expire, and traders will speculate on when and if someone might actually “exercise the option,” and thereby use the rights of the contract holder to buy or sell the underlying securities. The contract names the strike price at which the holder of a call option can buy a security; or, for a put option, the price at which the holder can sell the security. Continue reading...
What is triple witching?
Triple witching hour is when three types of derivatives expire at once, which happens once every quarter in the US. It typically results in irregular or volatile movements in the markets. When stock market index futures, stock market index options and stock options all expire at the same time, the hour before close is called the Triple Witching Hour. This occurs on the third Friday of March, June, September, and December in the United States between 3:00 PM and 4:00 PM Eastern time. Continue reading...
Is there any merit to some other portfolio theories?
Plenty of theories are known because they are useful, and it is up to you to discern which ones may be worth your time and fit your situation and investment or analysis style. There’s always merit to any theory which has been put through rigorous statistical tests. However, keep in mind that as with any other statistical inferences, an event with probability zero sometimes happens (Black Swans), and an event with probability one sometimes doesn’t. Continue reading...
What should I compare the performance of my portfolio with?
Benchmark indices are used to gauge the performance of an investment portfolio. In order to evaluate the performance of your portfolio for any given period of time, find the corresponding index for each investment in your portfolio. For example, for US Equities, use the S&P 500 For your Small Cap portion, use the Russell 2000 Index, etc. You can also compute weighted index blends that correspond to your index allocation (e.g., 40% MSCI / 60% S&P). If your manager or the portion of your portfolio significantly (by more than a couple percent) underperforms the corresponding index, be sure to carefully monitor this manager or portion of your portfolio. Continue reading...