Hot answers tagged

95

Fundamentally, I think there's a high level (and perhaps unsatisfying) answer to this. It's because that's not "banking" as a business, and a bank is established to do banking, not to get into the stock market. In other words, this question strikes me about the same as asking, why don't ice cream shops stop selling ice cream, and instead get in the ...


55

Where is the risk? The short answer is... Property damage from weather, termites, tenants, whatever. How about tenants who stop paying the rent and you need to go through legal channels to evict them? It doesn't cost a fortune but you had better not need that rent to make the mortgage. How about another GFC (Global Financial Crisis) like 2008 when ...


44

Mutual fund investments within a 401(k) plan (or outside a 401(k) plan for that matter,) are NOT covered by the FDIC regardless of whether the plan administrator is FDIC-insured or not; they are not on the list of things covered by FDIC insurance. So, you have no FDIC coverage to keep your money "safe" when you invest in a mutual fund. Mutual funds rarely go ...


28

Investments are usually insured by SIPC instead of FDIC, however it is a different kind of protection. Essentially it just protects you from the broker going under, not the investment losing value. When you invest in securities there is always some risk of your investment decreasing in value, however if you diversify properly that risk is mitigated pretty ...


25

where is the risk? Losing renters Damage done by renters Unexpected maintenance Legal liability Capital losses Other factors that should be included in expenses: Routine maintenance Paying the landlord (essentially a part time job for him) I'm not saying it's a bad investment - and it sounds like he has a decent property for an amazingly cheap price, ...


21

The biggest problem your friend has isn't the risks associated with real estate per se, and the existing answers have covered those pretty well. The problem is that your friend is about to sink their entire net worth (or some appreciable fraction thereof) into a single asset class. Not a great plan. The problem is systemic risk: for example in this case ...


19

In a lot of situations municipal bond returns are "triple tax free." No federal or state income tax and no AMT (Alternative Minimum Tax -- which is largely irrelevant at this point) liability. This tax preference is considered in the yields investors are willing to accept. Generally, you need to be in the upper most brackets for your real return in muni-...


16

Because your "bank" will fail The related questions assumes a "buy low, sell high", or even better, a "buy low, never sell" scheme of investment. But your proposed geared fund will not have that. They will have clients. Clients that can withdraw at worst possible moment. Recessions come hand to hand with markets down run. Long recessions will cause ...


14

So the general rule for real estate investment (in North America) is this: only do it if you love the idea of doing it. If you love the idea of being a landlord and property manager, you think the Monopoly Guy had the right idea, and you think hours spent repairing units and analyzing property spreadsheets and browsing property listings are a really fun ...


12

It doesn’t Dual-listed companies are more complex than you think. They are not a single company listed on two exchanges, they are two separate companies that have claims of the cash flow of the same business under the terms of their equalization agreement. So you can’t buy a share on one exchange and sell that same share on the other. In theory, because ...


12

what else is wrong with focusing on less developed markets exclusively? Less developed markets are risky, because they're volatile and prone to high inflation. That means you can lose a lot of money. What am I missing? The debt burden isn't as bad as you think it is. If the developed Western economies crash, everyone else's will too.


10

Anyone who wants to buy something from Zimbabwe or pay taxes in Zimbabwe will need to buy Zimbabwean dollars. A company in Zimbabwe that pays its workers in Zimbabwean dollars but sells products in US dollars will need to buy them too. Because there is an existing economy in Zimbabwean dollars, one has to buy the currency to be part of it. If the economy ...


10

"Risk" is a funny word. If you play Russian Roulette with all 6 bullets in, it stops being risk at that point. That's what you're doing by passing up that juicy employer match. The universal advice with 401Ks is contribute at least to the employer match, because that's free money! I gather the interior mechanisms of a 401K are a "black box" to you. ...


9

If the shares are fungible between the exchanges, you are correct that the prices will be kept nearly equivalent by arbitrage. The missing piece to understand how the price reacts to currency fluctuations is the fundamentals of the company. This applies regardless of whether the shares are traded in a single currency or multiple currencies. It's a matter of ...


8

I can jump in on this as a family with a lot of property. First off, I personally wouldn't mortgage an investment like this. He got lucky with this duplex but it can still go south. Over the years, we have seen a wealth of horrors like you wouldn't dream of from tenants who have destroyed our properties over and over again. Everything from dead sea snakes, ...


7

Price is everything. There is a price high enough that the best asset will be desired by no one, and a price low enough that the worst asset will be desired by everyone. If the price is constrained (e.g., by an official exchange rate), then there may indeed be no natural buyers. Governments that maintain unrealistic exchange rates for their currencies do ...


7

Even if you own a roulette wheel, letting a gambler bet you your entire net worth (or even sizeable % of it) in a single wager is a very high risk thing to do, despite the fact you have a clear edge and will win over time in a very stable manner as they make repeat bets. The main problem for investors outside of people already sitting on millions+ is it is ...


5

Perhaps this may be helpful to think of in terms other than currency. It seems obvious that gold bullion is more valuable than rice. So, if you have some rice to sell, and get gold in return, it would seem that you've won out. You gave something less valuable and got something more so; the other person gave something valuable and got something less so. ...


5

My question is - Is it safe to invest in a 401(k) plan? Yes, with the match you're probably safer than FDIC (see last paragraph) Long term (5+ years) investing in a mutual fund is a good bet. Vanguard is one I would consider a good company. I have invested with them before. You are in an even better position than many people - everything you put in is ...


4

One situation where this is possible is when you purchase an asset well below market value. If you have deep knowledge of a niche area and are willing to invest time searching for value, this isn't that hard, but it requires effort. I've done this for years in vinyl records and other collectibles.


3

The key question is what the currency change does to the fundamental value of the company. If the company is an American widget company AmCo with a primarily American customer base and a primarily American supply chain, then it should be broadly insulated against the price of Euros. (At least, until you consider irritating things like competitors. There's ...


3

This depends how you define risk. In the sense your portfolio will be substantially less diverse and likely more volatile, this is indeed more risky. What you suggest is a form of timing the market, by weighing more heavily into sectors you consider undervalued and less into those you see as overvalued at the time. Then readjusting later based on what ...


3

No, You cannot enter any order without the risk of the order getting executed. In my humble opinion, the fault resides with those who read and look at the order books and then take advantage. But the general public loves a hanging, and I fully agree, This article is by a similar sounding name.


3

Why doesn't any (serious) bank offer a savings account with a fixed 2% interest rate for an unlimited amount of time? I don't want to assume your age but you may not remember that this was actually a completely real situation in the past. When I was a growing up in the 80's I recall my basic savings account had an annual interest rate of somewhere between ...


3

In the US we have SIPC insurance which covers the custodial function of a brokerage firm as well as as protection against unauthorized trading or account theft. It provides up to $500,000 in total coverage per customer for lost or missing assets of cash and/or securities. It covers up to $250k of cash. Securities can be transferred from broker to ...


2

A lot depends on how long you will remain in your position and whether you want to have a retirement fund that you can take with you when you change jobs. Many academics end up with one employer for their entire career. We get the security of tenure in exchange for salaries that are low compared to what we could earn in industry. Once a faculty member has ...


2

No. The data you seek contain so much information that no one would be willing to share that it's impossible to collect the data. You would have to know how many people actually do throw away sensitive information and how. You would have to know how many fraudulent transactions actually occur (even this data is impossible to get because banks are fairly ...


2

Per year that is $7,200 on a $30,000 investment, which is 24%. That's not the way to calculate the yield. If I spend $1 on a lottery ticket which wins me $100, then I deposit the $100 in a bank account which earns $5 per year, then that bank account is earning me 5%, not 500%. Let's look at the numbers again: This friend is buying property in Lincoln ...


2

I would argue that you're only considering one of many variables (the brand) in the survivability of a franchise. I would also consider these variables critical if you're thinking of starting a franchise: Location Competition Financial health - how much do you need to borrow to operate? How much margin do you need? Local market - how many people will want ...


2

It terms of level of risk, from what I've seen the broad risk is comparable to broad equities (returns in the 7-15% range), but rather then the level of risk, real estate presents different risks than bonds of equity. The benefit of this is that real estate is a diversifying asset when combined with bonds and equity, since the odds of "bad things" happening ...


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