What are Municipal Bond Funds?
Municipal bonds funds invest exclusively in tax-advantaged municipal bond issues. Municipal Bond Funds invest in issues of municipal debt, often with the intention of using its tax advantages. Bonds held in a ‘muni fund’ might be state or local issues of general obligation or revenue bonds. Gains on muni funds are not taxable at the federal level, and if a person resides in the state in which the bond was issued, they can most likely avoid state or local taxes on gains as well. Continue reading...
What’s a Defined Benefit Plan?
Defined Benefit plans guarantee a certain amount of retirement income to an employee based on the employee’s current salary, years at the employer, and other factors. A Defined Benefit Plan involves a promise made to you by your employer to pay you a certain monthly “benefit” for the rest of your life, or for a certain number of years after retirement. The amount of the payment is pre-calculated using a formula which typically involves your age, your salary, the number of years you’ve worked for your employer, along with other factors. Continue reading...
What is a Profit?
In its simplest form, a profit is the revenue or income gained from an entity after all expenses/overhead is accounted for. In business, a company deals with a number of expenses - operating expenses (the cost of doing business), fixed costs (overhead), salaries and benefits, legal fees, and so on. If a company’s revenues exceed all of these costs combined, the company is considered profitable. A profit is also known as a company’s bottom line, net earnings, or net profit. Continue reading...
What is the Investment Advisors Act of 1940?
The IAA sought to regulate an industry that was deemed to be of public concern and within the Federal jurisdiction, though it did define some state-specific jurisdictions. It defines investment advisors and made laws dealing with fraud, advertising, non-public client information, disclosures, handling of client funds, and so forth. The Investment Advisors Act of 1940 established definitions for the capacity in which an investment adviser and investment advice could be defined, and made rules concerning the standards by which advisors should operate. Continue reading...
What is R-Squared?
R-squared is a statistical tool called a correlation coefficient. It is a percentage measurement that represents how closely correlated a security’s movement is with the movements of a benchmark index. Values range between 0 and 1 and are often expressed as percentages between 0% and 100%. A higher R-squared (between 85% and 100%) tells investors that a security moves more or less in correlation with the benchmark index. A lower R-squared (70% or less) means that the security in question moves independently from the index. Continue reading...
What are Accounting Policies?
Accounting policies are the internal controls of a company which stipulate the methods by which the books will be kept. Accounting policies are the agreed-upon accounting methods, conventions, and practices of an accounting cycle. A business must establish guidelines and training to ensure that accounts are kept in ways that satisfy their needs for documentation, security, liquidity, management, and the observation of applicable laws. Continue reading...
What is a price-weighted index?
When creating an index, it must be decided what criteria will affect the value of the index, and in the case of a price-weighted index, the only consideration is the price of shares. A price-weighted index is created by adding up the individual price per share of the companies included in the index and dividing by the number of companies. Essentially what you've done is arrived at the average price per share of the companies included in the index. Continue reading...
What is an Equity REIT?
Equity REITs are the more traditional version of Real Estate Investment Trusts, which invest solely in income-producing properties and operate similar to a mutual fund. When investing in Real Estate Investment Trusts (REITs) investors have a choice between equity REITs, mortgage REITs, and hybrid REITs. Equity REITs invest in income-producing properties, and have a hand in building and renovating such properties. 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 Percentage and What Kind of Bonds Should I Have in My Portfolio?
Bonds can provide consistency and balance to a portfolio otherwise comprised of stocks. In the long run, stocks are generally associated with a higher yield, but as we know, higher returns mean higher risks. Bonds are seen as a safer, yet lower-yielding investment. Bonds offer a spectrum of risk and return potential, however, and various kinds of bonds and bond funds can be used in various market climates and portfolios. Continue reading...