Investing - All Content

  1. What is "hot money"?

    "Hot money" refers to funds that are controlled by investors who actively seek short-term returns. These investors scan the market for short-term, high interest rate investment opportunities. A typical short-term investment opportunity that attracts "hot money" is the certificate of deposit (CD).
  2. Municipalities Free Up Cash With Chapter 9

    Find out what happens to municipalities when they need money, but have no other option than bankruptcy.
  3. How do I use a barbell strategy?

    The barbell strategy is an investment strategy that involves purchasing both short-term and long-term bonds and securities but no intermediates (such as in a "laddered" approach). The thinking behind this strategy is to help you, as an investor, diversify your portfolio and increase the probability of higher returns.
  4. How do I use a premium put convertible?

    Holders of convertible bonds face all the pitfalls that traditional bondholders face - liquidity risk, interest rate risk and default risk. But, there is one important difference: convertible bondholders also risk loss of principal due to declines in a company's underlying stock price.
  5. When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  6. Commodity Funds 101

    These funds make investing in gold, oil or grain an easier prospect.
  7. The Uptick Rule: Does It Keep Bear Markets Ticking?

    This rule prevents traders from driving stocks down, but its effect on market volatility is debatable.
  8. How did derivatives trader Nick Leeson contribute to the fall of Barings Bank?

    When an earthquake shook Kobe, Japan in 1995, it also broke open an ongoing scandal within the walls of Barings Bank. At the epicenter of the financial earthquake was Nick Leeson, a derivatives trader who, by the age of 28, had risen through the ranks of Barings to head its operations on the Singapore International Monetary Exchange (SGX).
  9. Cheap Steps To Reduce Your Carbon Footprint

    Making small adjustments to your habits and lifestyle can have big payoffs.
  10. Borrowing Smart In A Debt-Filled World

    Leveraging your money can have many perks, but it's not always the smartest financial plan.
  11. Moral Hazards: A Bump In The Contract Road

    Learn how this phenomenon can cause a party in an agreement to behave differently than expected.
  12. Financial Media 4-1-1 For Investors

    Cut through the information clutter and decipher the useful news from the useless.
  13. What is a wild-card play?

    A wild-card play is a term related to futures contracts. A future is a financial contract obligating a buyer to purchase, or a seller to sell, a particular asset such as a physical commodity or a financial instrument at a predetermined future date and price.
  14. Limiting Losses

    It is impossible to avoid them completely, but there is a systematic method you can use to control them.
  15. How did currency trader John Rusnak hide $691 million in losses before being caught for bank fraud?

    In 1993, Allfirst Bank hired a currency trader to shift the bank's forex (FX) operations from a merely hedging endeavor to one that would yield profits and boost the bank's bottom line. To this end, Allfirst brought on John Rusnak, who had a decent track record in foreign currency trading at Fidelity and Chemical Bank.
  16. Your client has a net short-term gain of $3,000 and a net long-term loss of $8,000. Which of the following statements are true?

    I. The short-term gain is fully taxableII. $3,000 of capital loss is deductible against earned incomeIII. There is a long-term loss carried forward of $2,000IV. There is no loss carried forwardA. I & IIIB. I & IVC. II & IIID. I, II, & III Correct answer: CThe gain and the loss are netted and result in a $5,000 long-term loss.
  17. Do Focused Funds Provide a Better Outlook?

    Should you diversify or focus? Read on to decide which will work best for you.
  18. Discover Master Limited Partnerships

    These unique investments provide significant tax advantages.
  19. Top 5 Reasons For A Stock Slide

    Prices seldom drop without cause. Find out what might make your stock hit the skids.
  20. The Pros And Cons Of Institutional Ownership

    These big players can both create and destroy value for shareholders.
  21. Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  22. Mechanical Investing Not A Golden Key

    Direct paths to wealth are getting narrower, fewer and may be locked up tight.
  23. The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  24. Profit With Investment Policy Statements

    Defining how investments are managed and monitored can help investors meet their goals.
  25. Testing Point-And-Figure Patterns

    Learn the patterns that will help you pinpoint and profit from breakouts.
  26. Does It Still Pay To Invest In Gold?

    This asset's appeal dates back thousands of years. Find out whether it can live up to the hype.
  27. Defeasance Reduces Commercial Real Estate Fees

    Try this alternative to short-term variable-rate financing when using leverage to buy property.
  28. Understand Your Role In The Investing Process

    Knowing what to expect when managing your assets will help you achieve your financial goals.
  29. The Lost Decade: Lessons From Japan's Real Estate Crisis

    Find out what America can learn from Japan's liquidity trap and credit crunch.
  30. Value Investing + Relative Strength = Higher Returns

    Buying value stocks that are moving higher helps investors steer clear of value traps.
  31. Immunization Inoculates Against Interest Rate Risk

    Big-money investors can hedge against bond portfolio losses caused by rate fluctuations.
  32. Bear Spray For Your 401(k)

    You can defend your retirement savings from the ravages of a bear market. We'll show you how.
  33. The Causes And Effects Of Credit Shocks

    These shocks cycle through history. Find out what you need to know to avoid the alarm bells.
  34. Fannie Mae, Freddie Mac And The Credit Crisis Of 2008

    Is the U.S. Congress' failure to rein in these mortgage giants to blame for the financial fallout?
  35. What is accrued interest, and why do I have to pay it when I buy a bond?

    A bond represents a debt obligation whereby the owner (the lender) receives compensation in the form of interest payments. These interest payments, known as coupons, are typically paid every six months. During this period the ownership of the bonds can be freely transferred between investors.
  36. Are certificates of deposit a kind of bond?

    There is a fair amount of overlap between certificates of deposit (CDs) and bonds; they are both fixed-income securities, which you generally hold on to until maturity. Simply put, you put your money into a CD or bond for a set period, and you know exactly what you will receive when that time is up.
  37. If I am American, can I buy a foreign mutual fund?

    That depends. It is possible for you to buy a mutual fund issued in a country other than the United States; however, the mutual fund still needs to be registered with the SEC. This is the reason why many investors are turned away by foreign mutual funds.
  38. I've heard some "market gurus" claim returns of up to 400% annually. Is this possible?

    To answer your question in a word: No! Although we wish such a phenomenal investment system were real, the claims you speak of are preposterous. Most "gurus" are nothing more than salespeople trying to push a product that, despite what they say, does not work.Anyone promising annual returns of more than 400% is one of two things: dishonest or extremely dumb.
  39. What is a "socially responsible" mutual fund?

    As the name suggests, socially responsible mutual funds invest exclusively in socially responsible investments. Securities from companies that adhere to social, moral, religious and/or environmental beliefs are a few examples.In addition to basic quantitative analysis, a socially responsible portfolio manager takes into account a company's community investment, environmental responsibility, protection of human rights, employment diversity, animal testing and product offering.
  40. What happens to the voting rights on shares when the shares are used in a short sale transaction?

    The registered owner of the security, known as the holder of record, is the investor who retains voting rights. This means the holder of record is entitled to vote on any corporate action that is decided upon by shareholders. (For further reading, see What Are Corporate Actions?) When it comes to short sales, the problem that arises is determining who is the holder of record on the shares being shorted.
  41. What is the cheapest, fastest way to research, buy and trade stock?

    Thanks to the internet, there is a huge range of service providers that investors can use to obtain investment research and execute trades in a cost-effective and timely manner. Some of the information providers are free, while others subscription based.Websites such as Investopedia and Yahoo Finance provide investors with a vast array of free stock information such as company financial statements, key earnings ratios and recent company news.
  42. How can I hedge against rising diesel prices?

    In early 2007, the New York Mercantile Exchange announced that traders would be able to buy or sell futures contracts on New York Harbor ultra low sulfur diesel and U.S Gulf Coast ultra low sulfur diesel. These contracts can be used by traders to hedge against rising or falling diesel prices.
  43. What will happen to my U.S.-based stock portfolio if the U.S. dollar substantially decreases in value?

    The effect of a significant depreciation in the value of the U.S. dollar on the value of an investor's U.S-based portfolio is very much a function of the portfolio's contents. In other words, if the dollar declines substantially in value against a number of other currencies, your portfolio might be worth less than before, more than before, or about the same as before - it depends on what kinds of stocks are in your portfolio.The following three examples illustrate the different potential effects of a declining greenback on an investor's portfolio:1.
  44. Where can I get bond market quotes?

    Getting bond quotes and general information about a bond issue is considerably more difficult than researching a stock or a mutual fund. A major reason for this is that there is not a lot of individual investor demand for the information; therefore, most bond information is available only through higher level tools that are not accessible to the average investor.In most cases, if you have a brokerage account, you will have access to that firm's research tools, which may include bond quotes and other information - this is the first place that you should look when seeking bond information.
  45. How does the required rate of return affect the price of a stock, in terms of the Gordon growth model?

    First, a quick review: the required rate of return is defined as the return, expressed as a percentage, that an investor needs to receive on an investment in order to purchase an underlying security. For example, if an investor is looking for a return of 7% on an investment, then she would be willing to invest in, say, a T-bill that pays a 7% return or higher.
  46. Where do companies keep their cash?

    If you have ever looked over a company's balance sheet, you have no doubt noticed the first account under the current asset section is cash and cash equivalents. The cash account contains, as the name suggests, all of the company's cash, while the cash equivalents account represents highly liquid investments the company can convert to cash within a few days.
  47. How does a person gain from an investment?

    There are two main ways in which a person gains from an investment. The first is by capital gains, the difference between the purchase price and the sale price of an investment. The second is investment income, the money paid to the holder of the investment by the issuer of the investment.
  48. Why do all mutual fund tickers have an X at the end?

    It's true that all mutual funds' tickers have an X at the end of their symbol. The reason for this is to distinguish between mutual fund tickers and other securities that also have ticker symbols (such as stocks and bonds). This way you will automatically recognize a mutual fund by the X at the end of its ticker.
  49. Why do share prices fall after a company has a secondary offering?

    The best way to answer this question is to provide a simple illustration of what happens when a company increases the number of shares issued, or shares outstanding, through a secondary offering. Let's start from the beginning. A company goes public with an initial public offering (IPO) of stock.
  50. What is a liquidity squeeze?

    A liquidity squeeze occurs when a financial event sparks concerns among financial institutions (such as banks) regarding the short-term availability of money. These concerns may cause banks to be more reluctant to lend out money within the interbank market.
  51. What is Black Monday?

    Monday October 19,1987, is known as Black Monday. On that day, stockbrokers in New York, London, Hong Kong, Berlin, Tokyo and just about any other city with an exchange stared at the figures running across their displays with a growing sense of dread.
  52. Sell Growth Stocks The IBD Way

    Savvy investing is all about learning some smart rules and sticking to them. We give you the rundown.
  53. Use Breakup Value To Find Undervalued Companies

    Find out a company's worth if it were sold in pieces - it may be more than you think.
  54. Eight Items That Impact Daily Trades

    Find out which factors can help you squeeze more profit out of each position.
  55. Plan To Retire Rich

    Don't just hope for the best - develop a course of action to achieve your goals.
  56. Canary Capital Partners: Anatomy Of A Scandal

    Learn how a hedge fund scammed its way to profits and caught investors off-guard.
  57. Darvas Box Traps Elusive Returns

    Follow a modern trade to see how this old strategy still captures profits today.
  58. Get Into Low-Cost Futures Trading With Synthetics

    If you can't trade commodity futures outright, these vehicles provide a less expensive alternative.
  59. Full-Service Brokerage Or DIY?

    Determine what you are getting for your fees and commissions and how to get your money's worth.
  60. Socially Responsible Investing Vs. Sin Stocks

    Can your principles make you richer or poorer? Find out if it pays pick your portfolio based on ethics.
  61. An Introduction To Canadian Income Trusts

    Yields in excess of 10% aren't rare, but these unique investments need to be chosen very carefully.
  62. 11 Things You May Not Know About Your IRA

    These little-known features will help you get the most out of your retirement savings.
  63. What's the difference between a mutual fund and a hedge fund?

    These two types of investment products have their similarities and differences. First, the similarities: Both mutual funds and hedge funds are managed portfolios. This means that a manager (or a group of managers) picks securities that he or she feels will perform well and groups them into a single portfolio.
  64. What is a stripped bond?

    The quick answer to this question is that a stripped bond is a bond that has had its main components broken up into a zero-coupon bond and a series of coupons. To help explain one, let's first describe a bond. A bond is a debt instrument traditionally comprised of two parts, the face value (principal) and the coupons (interest rate).
  65. How does an investor make money on bonds?

    Bonds are part of the family of investments known as fixed-income securities. These securities are debt obligations, meaning one party is borrowing money from another party who expects to be paid back the principal (the initial amount borrowed) plus interest.
  66. How do you calculate the percentage gain or loss on an investment?

    Calculating the percentage change of your investment is quite easy. All it takes is a little bookkeeping and either a simple calculator or a pad of paper for doing the long division. Here is what you need to do:Take amount that you have gained on the investment and divide it by the amount invested.
  67. Can a stock lose all its value? How would this affect a long or short position?

    The answer to the first part of this question is pretty straightforward: yes, stocks are able to lose all their value in the market. Now, we don't want to scare you off investing in stocks, or investing in general. However, we would be lying if we told you that stocks carry no risk (although some carry more than others).To help you understand why a stock can lose all its value, we should review how stock price is determined.
  68. What is the difference between yield and return?

    Because investors are very concerned with how well their investments are performing or how they are expected to perform, knowing how to gauge such performance is essential. This makes understanding the difference between yield and return important. While both terms are often used to describe the performance of an investment, yield and return are not one and the same thing.
  69. Can a stop-loss order be used to protect a short sale transaction?

    The quick and simple answer to this question is yes. The major difference between the stop-loss order used by an investor who holds a short position and one used by an investor with a long position is the position in which it is placed. The individual with the long position wishes to see the price of the asset increase, whereas the individual with the short position wants the price of the asset to decrease and would be negatively affected by a sharp increase.
  70. If one of your stocks splits, doesn't that make it a better investment? If one of your stocks splits 2-1, wouldn't you then have twice as many shares? Wouldn't your share of the company's earnings then be twice as large?

    Unfortunately, no. To understand why this is the case, let's review the mechanics of a stock split.Basically, companies choose to split their shares so they can lower the trading price of their stock to a range deemed comfortable by most investors. Human psychology being what it is, most investors are more comfortable purchasing, say, 100 shares of $10 stock as opposed to 10 shares of $100 stock.
  71. Why do companies issue debt and bonds? Can't they just borrow from the bank?

    Companies issue bonds to finance operations. Most companies can borrow from banks, but view direct borrowing from a bank as more restrictive and expensive than selling debt on the open market through a bond issue. The costs involved in borrowing money directly from a bank are prohibitive to a number of companies.
  72. Why do commercial bills have higher yields than T-bills?

    The reason that commercial bills have higher yields than T-bills is due to the varying credit quality of each bill type. The credit rating of the entity issuing the bill gives investors an idea of the likelihood that they will be paid back in full. The federal government's debt (T-bills) is considered to have the highest credit rating in the market because of its size and ability to raise funds through taxes.
  73. What parties are involved in the creation of an American depositary receipt?

    An American depositary receipt (ADR) is a legal certificate issued by a recognized U.S. bank that represents a specific number of shares of a foreign corporation traded on a U.S. stock exchange. An ADR will be used by a foreign corporation that wishes to have a portion of its equity traded in the U.S.
  74. Why are options very active when they are at the money?

    Stock options, whether they are put or call options, can become very active when they are at the money. In the money options refer to when the strike price of a call option is below the market price of the underlying stock, and when the strike price of a put option is above the market price of the underlying stock.
  75. Are ETFs subject to the short sale uptick rule?

    Mutual fund use and development has increased rapidly ever since they were first introduced in the early 1920s. In the United States, mutual funds control over $9 trillion in assets. Under the category of mutual funds, exchange-traded funds (ETFs) have been around since the 1990s, and have become one of the most popular classes of mutual fund.ETFs differ from all other mutual fund classes in that they are traded just like stocks.
  76. Are eurodollars related to the currency called the euro?

    Eurodollars have little to do with the official currency of the European Union, the euro (EUR). In 1999, the euro was implemented as the official currency of the European Union as a means to further integrate the economies of that region. Most of the member states of the European Union have dropped their former domestic currencies completely, and all the major banking institutions in Europe now deal with euros in their transactions and operations.Eurodollars, though, are not found only in Europe.
  77. What happens when a circuit breaker is put into effect?

    A circuit breaker represents a situation where the Securities and Exchange Commission (SEC) and National Association of Securities Dealers (NASD) have announced a market-wide (includes NYSE, NASDAQ and OTC securities) trading halt in the event of a substantial one day decline in the value of the Dow Jones Industrial Average (DJIA).
  78. What is an Islamic investment policy?

    Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual and the secular.The establishment of an Islamic investment policy, be it for the institutional or individual investor, starts with the Sharia Board, a group of Islamic scholars (jurists) that vests investment products for compliance with Islamic Law and conducts ongoing due diligence of them.
  79. What is the difference between a collateralized mortgage obligation (CMO) and a collateralized bond obligation (CBO)?

    Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors receive payments from a pool of underlying assets. The difference between these securities lies in the type of assets that provide cash flow to investors.
  80. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually break it, but they forced the British government to pull it from the European Exchange Rate Mechanism (ERM). Joining the ERM was part of Britain's effort to help along the unification of the European economies.
  81. How does pyramiding work?

    Pyramiding is a method of increasing margin by using unrealized returns from successful trades. Pyramiding works by surrendering a minimal amount of previously-owned shares in order to pay a part of the exercise price. The surrendered funds are used to purchase a larger amount of option shares.
  82. The Chinese Wall Protects Against Conflicts Of Interest

    After the crash of 1929, this barrier helped define ethical limits, but it did little to prevent fraud.
  83. Seek Out Past Losses To Uncover Future Gains

    Tax loss carry-forwards can help reduce the tax burden of owning a profitable fund.
  84. The Money Market: A Look Back

    Learn how past inflationary periods can predict future real rates of return for cash investments.
  85. Lead The Charge With Product Development

    If you like to keep your finger on the pulse of the market, this could be the career for you.
  86. Market Timing Fails As A Money Maker

    This strategy is popular, but can you do it successfully?
  87. Eliot Spitzer - Man Of A Thousand Scandals

    Learn about the Wall Street scandals Eliot Spitzer prosecuted before perpetrating his own.
  88. The Rise And Demise Of New Century Financial

    A case study in how poor planning toppled a subprime mortgage giant.
  89. Which Is Better: Dominance Or Innovation?

    Find out how to assess and evaluate both these values in the market and your portfolio.
  90. The Cost And Consequences Of Bad Investment Advice

    Is your advisor working for you, or for him/herself? Find how to tell the difference.
  91. How To Use Gann Indicators

    This trendline-like technical analysis tool has been around for decades - but it still works.
  92. Finding Short Candidates With Technical Analysis

    Learn how to distinguish tops and bottoms in the equity market when short selling.
  93. The Risks Of Mortgage-Backed Securities

    Find out how weighted average life guards against prepayment risk.
  94. What's the difference between a load and no-load mutual fund?

    A mutual fund is simply a large group of people who lump their money together for a management company to invest. And, like most things in life, there are fees and commissions involved. Mutual funds come in two main flavors, categorized by how the fees are charged.
  95. If I own a stock in a company, do I get a say in the company's operations?

    You don't get a direct say in a company's day-to-day operations, but, depending on whether you own voting or non-voting stock, you may have a hand in shaping its board of directors and deciding on special issues. Voting Stock – If the stock you own is a voting stock and you're a shareholder on record when a decision must be made through a vote, you have a right to vote on the issue.
  96. What does it mean when people say they "beat the market"? How do they know they have done so?

    "Beating the market" is a difficult phrase to analyze. It can be used to refer to two different situations:1. An investor, portfolio manager, fund or other investment specialist produces a better return than the market average. The market average can be calculated in many ways, but usually a benchmark - such as the S&P 500 or the Dow Jones Industrial Average index - is a good representation of the market average.
  97. Why do interest rates tend to have an inverse relationship with bond prices?

    At first glance, the inverse relationship between interest rates and bond prices seems somewhat illogical, but upon closer examination, it makes sense. An easy way to grasp why bond prices move opposite to interest rates is to consider zero-coupon bonds, which don't pay coupons but derive their value from the difference between the purchase price and the par value paid at maturity.
  98. How do stock splits affect short sellers?

    The simple answer to this question is that stock splits do not affect short sellers in a material way. There are some changes that occur as a result of a split that do affect the short position, but they don't affect the value of the short position. The biggest change that happens to the portfolio is the number of shares being shorted and the price per share.
  99. Why are some shares priced in the hundreds or thousands of dollars, while other just as successful companies have more normal share prices? For example, how can Berkshire Hathaway's be over $80,000/share, when the shares of even larger companies are only

    The answer can be found in stock splits - or rather, a lack thereof. The vast majority of public companies opt to use stock splits, increasing the number of shares outstanding by a certain factor (e.g. by a factor of two in a 2-1 split) and decreasing their share price by the same factor.By doing so, a company can keep the trading price of its shares in a reasonable price range.
  100. What are the risks of investing in a bond?

    The most well-known risk in the bond market is interest rate risk - the risk that bond prices will fall as interest rates rise. By buying a bond, the bondholder has committed to receiving a fixed rate of return for a fixed period. Should the market interest rate rise from the date of the bond's purchase, the bond's price will fall accordingly.
Frequently Asked Questions
  1. What is a BRIC nation?

    BRIC is an acronym for the combined economies of Brazil, Russia, India and China. The economies of these four nations are collectively called "the BRICs," "the BRIC countries," "the BRIC economies" or the "Big Four." The countries currently represent about 25% of the world's land mass and 40% of its population.
  2. What is the Dodd-Frank Act? How does it affect me?

    The Dodd-Frank Wall Street Reform and Consumer Protection Act is a massive piece of financial reform legislation passed by the Obama administration in 2010 as a response to the financial crisis of 2008. The act's numerous provisions, spelled out over thousands of pages, are scheduled to be implemented over a period of several years and are intended to decrease various risks in the U.S.
  3. I want to invest my emergency fund to earn interest. What is a relatively safe and liquid investment I can easily withdraw from if disaster struck?

    When considering where to put your emergency money, a key consideration is making sure you'll be able to access the money quickly, easily and without penalty, when you need it. Financial professionals don't recommend investing your emergency fund in the stock market because stocks are volatile.
  4. What is a triple tax-free municipal bond?

    At its core, a triple tax-free municipal bond is just like any corporate bond: it is a debt instrument, a loan given to a government authority or municipality in order to help it meet certain financial objectives or complete projects in the community.
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