What Part of the Contribution into My IRA is Tax-Deductible?
Traditional IRAs can get interesting if you or a spouse is covered by a qualified plan at work. You are able to deduct all of your contributions into a Traditional IRA as long as you (or your spouse) are not a participant in an employer-sponsored retirement program. If either of you are, there are certain regulations you should be aware of. The amount of your contribution that can be tax-deductible is determined by your (and your spouse’s) modified adjustable gross income (MAGI). Continue reading...
When Can I Access Money in My Roth IRA?
Roth IRAs have some interesting provisions that make them a little more liquid than other retirement accounts. Roth IRAs contain after-tax contributions that actually remain accessible to you at any time, without tax or penalty. The stipulations on withdrawals are only concerned with earnings in the account, not the principal amount. In order to withdraw earnings without paying a 10% penalty and income taxes, you must be at least 59½ and five years must have passed since you first began contributing. Continue reading...
What is the Consumer Price Index (CPI)?
The Consumer Price Index (CPI) is a measure of the average change, over time, in the prices paid by urban consumers for a market basket of consumer goods and services. The CPI is an important economic indicator, as it’s changes influence the Federal Reserve’s monetary policy decisions and it gives an indication if an economy is experiencing adequate inflation. The most common reading on the CPI is % change from a previous period, with most developed economies generally striving for 2% annualized inflation. Continue reading...
What is the Discount Rate?
The Discount Rate can actually have multiple meanings, but the most prevalent one is in regards to the minimum interest rate the Federal Reserve will charge for lending to commercial banks. The Federal Reserve sets the discount rate in an effort to discourage or encourage commercial banks to borrow, depending on the economic conditions. The discount rate also refers to the rate used to calculate the present value of future cash flows, as part of Discounted Cash Flow (DCF) analysis. Continue reading...
What is Abatement Cost?
Environmental regulations or lawsuits occasionally force companies to comply by taking measures or acquiring technologies to abate their environmental impact, and the overhead of such projects is called Abatement Cost. Increasingly over the last 20 years or so more countries and states have begun imposing laws on companies to reduce their carbon emissions, noise pollution, and various other environmental impacts. The costs of enacting measures or technologies to help them comply with such regulations is known as abatement cost. Continue reading...
What is an Account Balance?
An account balance is the amount either credited to or owed on a ledger assigned to a particular entity or line-item. The balance of an account is the net debit or credit assigned to it after all transactions have been documented for a current period. Transactions might be deposits, withdrawals, interest credited, fees, or other activity. The account in question could be a personal savings or checking account, or a ledger account at a business or institution, or another form of account, such as the macroeconomic concept of current national account. Accounts are said to be “in the red” when there is a net debit (negative) amount, and “in the black” when there is a net positive balance (net credit). Continue reading...
What is Foreign Investment Funds (FIF) tax?
New Zealand and Australia, in particular, have instituted a tax regime for offshore investments that fall into the definition of Foreign Investment Funds (FIFs). FIFs will generally be mutual fund companies that are based overseas, but can also include cash value life insurance underwritten by a foreign company and some stock portfolios from overseas stock exchanges. The US has the PFIC tax, which is a passive foreign investment corporation tax. The PFIC category generally applies to mutual funds or pooled investment companies from foreign countries. Continue reading...
What is Time Value of Money?
The Time Value of Money is a theme for discourse and calculations related to the effect of interest on money over time, and the interrelation between Present Value and Future Value. The Time in the equation of Rate of Return x Time x Present Value = Future Value has a value and an effect on the Future Value (or the Present Value depending on what you're solving for). The Time Value of Money is, at it's simplest, something which nearly everyone has seen but hasn't heard called by that name: turn this amount of money into that amount of money by letting it grow in the market for a length of time. Continue reading...
Do I Need an Advisor on a Permanent Basis?
Short-term advisor relationships do not tend to be very productive, and can sometimes be counter-productive, but advisors may still be useful for one-time consultations when an investor just wants an opinion on a specific issue. A long-term relationship with one advisor is preferable to many short-term relationships. Meeting with a new advisor will usually be part of a transition period where an investor is looking to try something new. The advisor may start out with some preliminary planning but the investor may jump to the next advisor before the former advisor could really shape the plan he or she was seeking to build. 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...