GDP BY COUNTRY: TOP 10 LIST, OER VS. PPP, PER CAPITA

GDP BY COUNTRY: TOP 10 LIST, OER VS. PPP, PER CAPITA

Equilibrium / Hilary Ellison

Gross domestic product allows you to compare the economies of the countries of the world. It measures everything that is produced by people in a given country, whether they are citizens of that country or not.

The International Monetary Fund has measured the GDP of all countries in the world. As of 2018, the top 10 countries by GDP are:
United States: $20.4 trillion

China: $14.0 trillion

Japan: $5.1 trillion

Germany: $4.2 trillion

UK: $2.9 trillion

France: $2.9 trillion

India: $2.8 trillion Italy: $2.1 trillion

Brazil: $2.1 trillion

Canada: $1.7 trillion

Together, these countries generate 67% of the world's $87.5 trillion GDP.

The European Union is a trade and monetary union, not a country. But if that were the case, it would be the second largest. Its GDP is $19.6 trillion.

If you combine the three leading economies - the US, the EU and China - their GDP would be 54 trillion dollars. This is 62% of the total production in the world. Their GDP shows that what they do has a huge impact on the global economy.

Three ways to measure GDP by country

There are three ways to compare GDP between countries. The one you use depends on your goal and how it will be affected by exchange rates and population.

Here is a summary of the three ways how they are calculated and when you would use them.

Official exchange rate

The IMF uses the most commonly used measure, the official exchange rate. This rate is set by the government or the central bank of the country. It tells you how much the bank will give you in exchange for one unit of your country's currency.

The official exchange rate must be a fixed exchange rate. Values ​​do not change at the whim of the market. Most central banks fix their currencies either to the US dollar or to the currencies of their major trading partners.

For example, China has traditionally maintained a fixed exchange rate for the yuan, its national currency. China has pegged the yuan to a 2% range against a basket of currencies that includes the US dollar. This allows China to control its labor and production costs. This makes Chinese export prices less expensive, so anything made in China is more competitive in the global market.

Because China has a low exchange rate, the OER method gives a low figure for China's economic output.

The good news for Chinese people is that it also makes the cost of living lower. In June 2018, a Big Mac cost only $3.10 in China, while it cost $5.51 in the US. The Economist magazine created the Big Mac Index to determine where currencies are up to par in purchasing power parity. The index says the yuan was undervalued by 44%.

Use the OER method when you want to compare two emerging markets or two advanced economies. You can also use it to compare a country's economic output over time, as long as its exchange rate hasn't changed drastically.

In addition to the IMF, the OER method is used by the CIA World Factbook. It lists all countries and their GDP in alphabetical order. This is convenient when you already know which country you want to explore.

Purchasing power parity

Purchasing power parity allows for more accurate comparisons between the economies of the two countries. It compensates for changes in exchange rates over time. It also takes into account government manipulation of exchange rates.

PPP GDP is calculated by determining how much each good bought in a country would cost if it were sold in the US. These costs are then added together to obtain the total volume of goods and services produced in a given country in a given year.

PPP can be very subjective. Everything that is produced in the country must have the value of the US dollar. This can be especially tricky if it's something that isn't made or even sold in the US, like an oxcart.

The PPP method is most important when comparing emerging market countries with developed market countries. The PPP method gives a more accurate reflection of the strength of the Chinese economy.

The IMF calculates GDP by country using PPPs.


In 2018, China's PPP economic output was $25.2 trillion. Using the PPP method, China will replace the US as the world's largest economy.

10 largest economies in the world using PPP
(in trillions of US dollars)

GDP per capita

GDP per capita is a good way to compare the output of a country from the point of view of its inhabitants. It divides the output of a country's economy by its population. You can use GDP per capita to compare any country with another.

The IMF calculates GDP per capita based on the OER method. Here are the top 10 countries as of 2018:
Luxembourg: $114,234

Switzerland: $82,950

Macau: $82,387 Norway: $81,694

Ireland: $76,098

Iceland: $74,278

Qatar: $70,779

Singapore: $64,041: $62,605

Denmark: $60,692

China and the EU are not even on this list. In China, GDP per capita is $9,608, while in the EU it is $43,074. Both regions have large regions with low GDP. The population of China is 1.39 billion people.

The situation looks different when using PPP. For example, China's per capita GDP rises to $18,200 when the exchange rate impact is taken into account. The standard of living in the US is much higher than in China, at $59,800 per capita. This is because there are far fewer people there.
YOUR GUIDE TO BEAR STEARNS, ITS COLLAPSE AND RESCUE

YOUR GUIDE TO BEAR STEARNS, ITS COLLAPSE AND RESCUE

Mortgage-backed securities that began to lose value in September 2006 when home prices began to fall. This was the beginning of the subprime mortgage crisis.

On June 7, Bear Stearns froze payments to investors in these funds and provided one of the funds with a $1.6 billion loan. Bank of America guaranteed the funds' loans of $4 billion. On June 20, Merrill Lynch sold a portion of its shares in the two funds. On July 31, both hedge funds filed for bankruptcy.

In October 2007, Bear Stearns entered into a partnership with China's CITIC Securities Co. in order to receive an infusion of much-needed cash.

In November 2007, the Wall Street Journal published an article criticizing Bear CEO James Caine. It accused Kane of playing bridge and smoking weed instead of focusing on saving the company. The article further damaged Bear Stearns' reputation.

On December 20, 2007, Bear Stearns posted its first ever loss.

In the fourth quarter, Bear Stearns lost $859 million and announced a write-down of $2 billion in subprime mortgage assets. Moody's downgraded the company's rating from A1 to A2.

In January 2008, Moody's downgraded Bear's mortgage-backed securities to B or below, which is a junk bond. As a result, Bear had trouble raising enough capital to stay afloat. Bear CEO James Cain stepped down and was replaced by Alan Schwartz.

federal rescue

On Monday, March 10, 2008, many of Bear's trading partners decided to end their relationship with the bank. This left Bear in a difficult position as he only had $18 billion in cash reserves.

On March 11, 2008, Moody's downgraded Bear's MBS rating to B and C. These two events triggered an old-fashioned banking crash and clients withdrew their deposits and investments.

By March 13, Bear Stearns had only $2 billion in cash left. How did it happen so quickly? Bear was losing cash when other banks withdrew their buyback agreements and refused to make new loans. Nobody wanted to get involved in Bear securities.

repurchase agreements. As part of the repurchase agreement, the dealer exchanges its securities for cash from other banks. When the buyback agreement expires, the banks reverse the transaction and the lender receives a quick and easy premium of 2-3%.

Bear's CEO realized he didn't have enough cash to open the business on March 14th. He approached Bear's bank, JP Morgan Chase, for a $25 billion overnight loan. Chase CEO Jamie Dimon needed more time to study Bear's true value before making a commitment. He asked the Federal Reserve Bank of New York to guarantee a loan so Bear could reopen on Friday.

Without the intervention of the Fed, the failure of Bear Stearns could have spread to other banks. These included money market funds used by small businesses.

At 9:15 am on March 14, the Fed board held an emergency meeting. He approved a discount window loan to Chase for the transfer of Bear. The amount was capped by Bear's collateral, and Chase could default on the loan if Bear didn't have enough assets to repay it.

The Fed used its section 13(3) lending authority to bail out Bear. This allows the Fed to lend to any private company with sufficient capital, but it cannot buy the company's shares or guarantee its assets. The last time the Fed used this power was to bail out banks during the Great Depression.

On March 16, Chase announced the purchase of Bear for $236 million. He purchased Bear for $2 a share, which is the March 15 closing price. This was a sharp drop from the $170 price that Bear stock was worth a year earlier.

The Fed loan given to Chase on March 14 was repaid on March 17. The Fed's board met on March 16 to approve a $30 billion loan to Chase in exchange for Bear's assets. The Fed will be able to sell assets at a higher cost in a few years when the market improves.

Fraud disclosure

On June 19, 2008, the Securities and Exchange Commission accused the managers of two hedge funds of fraud. Both managers, Ralph Cioffi and Matthew Tannin, lied about how bad things were for the funds. What they didn't tell investors was that the Enhanced Leverage Fund fell 18.97% in April 2007. Instead, they said that returns were on par with March.

They also lied about how much money was invested in subprime mortgages. They said that only 6%-8% of the fund's portfolio was subprime. Instead, they stated that 60%.

Impact of the collapse of Bear Stearns

The collapse of Bear Stearns caused a panic on Wall Street. Banks have realized that no one knows where all the bad debts are hidden in the portfolios of some of the most respected names in the business. This triggered a banking liquidity crisis that made banks unwilling to lend to each other.

Chase CEO Jamie Dimon regrets buying Bear Stearns and another failed bank, Washington Mutual. Both cases cost Chase US$13 billion in legal fees. The end of failed Bear deals cost Chase another $4 billion. Investors lost confidence as Chase took over the dubious assets of Bear. This lowered Chase's stock price for at least seven years.
BRETTON WOODS SYSTEM AND AGREEMENT

BRETTON WOODS SYSTEM AND AGREEMENT

Buying a currency reduces the supply of the currency and increases its price. If the price of a currency got too high, the central bank would print more. This printed matter will increase the supply and lower the price of the currency. This method of monetary policy is often used by central banks to control inflation.

Members of the Bretton Woods system agreed to avoid trade wars. For example, they will not depreciate their currencies strictly to increase trade. But they could regulate their currencies under certain conditions. For example, they could take action if foreign direct investment began to destabilize their economy. They could also adjust the value of their currencies to recover from the war.

Replacing the gold standard

Prior to Bretton Woods, most countries followed the gold standard. This meant that each country guaranteed to redeem its currency for its gold value. After Bretton Woods, each member agreed to redeem their currency with US dollars rather than gold.

Why dollars? The United States held three-quarters of the world's gold. No other currency had enough gold to replace it. The value of a dollar was 1/35th of an ounce of gold. Bretton Woods allowed the world to slowly move from the gold standard to the US dollar standard.

Now the dollar has become a substitute for gold. As a result, the value of the dollar began to rise against other currencies.

This transition created an increased demand for dollars, although their value in gold remained the same. This discrepancy in value set the stage for the collapse of the Bretton Woods system three decades later.

Why the agreement was necessary

Prior to World War I, most countries followed the gold standard. However, they severed their connection with gold in order to be able to print the currency needed to pay for military expenses. This influx of currency caused hyperinflation as the supply of money exceeded demand. After the war, countries returned to the gold standard.

Hyperinflation caused the value of money to drop so dramatically that in some cases people needed wheelbarrows full of cash to buy a loaf of bread.

Everything was going well until the Great Depression. After the stock market crash in 1929, investors switched to trading in commodities. This led to an increase in the price of gold, causing people to exchange their dollars for gold. The Federal Reserve made matters worse by protecting the country's gold reserves by raising interest rates.

The Bretton Woods system gave countries more flexibility than strict adherence to the gold standard. It also provided less volatility than a currency system without a standard. A member country still retains the ability to change the value of its currency, if necessary, to correct a “fundamental imbalance” in the current account balance.

The role of the IMF and the World Bank

The Bretton Woods system could not work without the IMF. Member countries needed it to bail them out if their currency's value got too low. They needed a kind of global central bank that they could borrow from if they needed to adjust the value of their currency and they didn't have the funds themselves. Otherwise, they would simply impose trade barriers or raise interest rates.

The Bretton Woods countries decided not to give the IMF the powers of a global central bank. Instead, they agreed to contribute to a fixed pool of national currencies and gold to be held by the IMF. Then each country member of the Bretton Woods system had the right to take the loans it needed within the limits of its contributions. The IMF was also responsible for enforcing the Bretton Woods agreement.

The IMF was not created to print money and influence the economy through monetary policy.

The World Bank, despite its name, was not (and is not) the world's central bank. During the Bretton Woods Agreement, the World Bank was created to lend to European countries devastated by World War II. The World Bank's purpose has changed to lend to economic development projects in emerging markets.

The collapse of the Bretton Woods system

In 1971, the United States suffered massive stagflation, a combination of inflation and recession that causes unemployment and low economic growth.

In response to the dangerous fall in value caused by too much currency in circulation, President Nixon began devaluing the value of the dollar in terms of gold. Nixon devalued the dollar to 1/38 of an ounce of gold and then to 1/42 of an ounce.

The devaluation plan backfired. It caused the US gold reserves at Fort Knox to run low as people exchanged their rapidly depreciating dollars for gold. In 1971, Nixon completely decoupled the value of the dollar from gold. Without price controls, gold quickly rose to $120 an ounce on the free market, ending the Bretton Woods system.

The creation of the Bretton Woods system resulted in countries pegging their currencies to the US dollar. In turn, the dollar was pegged to the price of gold, and the US came to dominate the world economy. The US was the only country that could print a globally recognized currency, and countries had more flexibility than under the old gold standard.

When the dollar was no longer pegged to the price of gold, it became the money standard and other currencies pegged their currencies to it.

ANALYSIS OF THE INCOME STATEMENT

ANALYSIS OF THE INCOME STATEMENT

Analysis of the income statement

Investors can use income statement analysis to calculate financial ratios that can be used to compare the same company from year to year, or to compare one company to another.

For example, you can compare one company's profits to those of its competitors by looking at a number of margin measures, such as gross profit margin, operating profit margin, and net profit margin. Or you can compare the earnings per share (EPS) of one company to the earnings per share of any other to show what a shareholder would get per share if the assets became liquid or if each company distributed its net income.

Vertical Analysis

When you compare each line of the report up and down with the top line (which is income), this is called “vertical analysis”. Each line becomes a percentage of the base figure. This method can be used to simply compare one item to another, for example, to test how each might affect cash flow, or to show how the value of one item compares to the value of any other. This can be useful if, for example, you are looking for a reason why a company took a certain action or where it might have overspent. Investors use this method to take a deep look at a company's current position in relation to metrics such as working capital and total assets.

Horizontal Analysis

Horizontal analysis, on the other hand, compares the same indicator over two or more time frames. This method is most commonly used to identify trends. One article can be viewed over a long period of time to see changes from year to year. For example, you may want to clarify what factors may have determined the success (or failure) of a particular company over the past few years. Some investors use this method to predict how well a company will perform in the coming months or years.

Income Reporting Limitations

Since income statements have a number of limitations, they may not always be the best source of information. It depends on what you are looking for. Capital structure and cash flow are just two of the things that can make or break a company, and you need the right numbers.

This is not the whole picture

Although the income statements contain a lot of detail, they do not give a complete picture. The most conspicuous absence is the form that money takes, be it cash or credit. Income statements do not reflect whether sales were made in cash or by credit card, for example, and the same applies to payments. Thus, there is no sure way to determine how much cash can be in the cash drawer at any given time, or how much should come in.

If you have access to balance sheets and cash flow statements, you can fill in the missing pieces.

Lack of exact numbers

Since the income statement is intended to give a complete picture or overview, it often uses approximate numbers rather than exact numbers. To be clear, in order to live day to day and make the right choices, companies may need to act quickly. To function successfully, they need to be able to effectively evaluate broad concepts, or they may need to anticipate future needs in order to make current choices. In these cases, estimates can be very helpful. For example, they often have to come up with a figure to depreciate their assets; after all, they cannot know in advance how long a computer, copier, or corporate jet will last. If they face legal trouble, they will need to determine how much cash to keep in reserve to cover liability,

word of warning

Since the most accurate figures are not always reported on income statements, there is always the possibility of misrepresentation. Whether by design or by accident, the numbers can be skewed. Too high or too low numbers may be used in the income statement, and if you read it, you have no real way of knowing the exact numbers. You also cannot know for sure if there are some insidious motives at work here. While estimates are necessary, and errors can occur without intent, they can also occur intentionally. There are many reasons why a company might want to express an increase or decrease in numbers such as losses or profits, and if it does so without exact numbers to support its claims, then it is fraudulent.

When reviewing income statements, note that companies may differ in accounting methods. Some may use the first in, first out (FIFO) method, while others may use the last in, last out (LIFO) method. This will affect the numbers you can try to compare.
FOMC: WHAT IS IT, WHO IS IN IT AND WHAT DOES IT DO

FOMC: WHAT IS IT, WHO IS IN IT AND WHAT DOES IT DO

Who is on the FOMC?

The Committee consists of 12 voting members. They include the chairman and six other governors appointed by Congress. It also includes the vice chairman and four presidents of the regional Federal Reserve Banks. The position of vice chairman is permanent, while regional presidents serve on the FOMC for one year on a rotating basis.

Chairman

Jerome H. Powell became chairman of the FOMC and the Fed's Board of Governors on February 5, 2018 for a four-year term that runs until January 31, 2028. He has been a member of the Fed's Board of Governors since May 25, 2012.

Prior to joining the Fed, Powell was a former senior Treasury officer under former President George W. Bush, a visiting scholar at the Bipartisan Policy Center, and a partner at the Carlyle Group from 1997 to 2005. He succeeded Janet Yellen as chair of the Fed.

Vice Chairman

The position of Vice Chairman always goes to the President of the Federal Reserve Bank of New York. Since June 2018, this post has been occupied by San Francisco Fed President John Williams.

Appointed by Congress

The FOMC currently has five congressional appointees. One position is vacant.

Lael Brainard (Committee term: June 16, 2014 to January 31, 2026) was Deputy Secretary of the Treasury Department, Senior Fellow at the Brookings Institution, and Deputy National Economic Adviser to former President Bill Clinton. She was also a professor of economics at the MIT Sloan School of Management.

Richard H. Clarida (September 17, 2018 - January 31, 2022) is Columbia University Professor of Economics and Director of PIMCO. In addition, Dr. Clarida served as Assistant Secretary for Economic Policy at the US Department of the Treasury from February 2002 to May 2003.

Randal Quarles (October 13, 2017 - January 31, 2032) Vice Chairman for Oversight until October 13, 2021. He is also Chairman of the Financial Stability Board. Both positions were created under the Dodd-Frank Wall Street Reform Act to promote financial stability in the wake of the 2008 financial crisis. Prior to taking these positions, he was a managing director at the Cynosure Group and Carlyle Group, and a Treasury Officer under former President George W. Bush.

Michelle Bowman (November 26, 2018 to January 31, 2034) was a Kansas Bank Commissioner, an experience Congress requires at least one board member to have. Before joining the banking industry, Bowman held senior positions at the Department of Homeland Security (DHS) and the Federal Emergency Management Agency (FEMA), and ran a London-based government and public affairs consultancy.

Christopher Waller (December 18, 2020 – January 31, 2030) was Director of Research at the Federal Reserve Bank of St. Louis from June 2009 until his appointment to the Board. He has also been a professor of economics at the University of Notre Dame and the University of Kentucky.

Presidents of regional banks
Four Federal Reserve Bank presidents who will join the FOMC in 2021:

* Mary K. Say, San Francisco

* Thomas Barkin, Richmond

* Raphael Bostick, Atlanta

* Charles Evans, Chicago

Four other Fed bank presidents will become deputies in 2021. They will become members of the FOMC in 2022. It:

* Loretta J. Mester, Cleveland

* Eric Rosengren, Boston

* James "Jim" Bullard, St. Louis

* Esther George, Kansas City

Bank of New York First Vice President Helen Mucciolo is the permanent deputy.

What does the FOMC do?

The FOMC works with the Federal Reserve Board to control four monetary policy instruments: reserve requirements, open market operations, the discount rate, and interest on excess reserves. The FOMC sets a target range for the federal funds rate. at his meetings. The Board sets the discount rate and reserve requirements.

The FOMC uses its tools to achieve maximum employment and stable prices. To do this, he must control unemployment and inflation.

Economic Goals of the Fed

The Fed's inflation target is 2% over time. He wants prices to increase by 2% every year. When this happens, people expect inflation. This motivates them to buy now, not later. Low inflation stimulates demand, which is good for economic growth.

The FOMC no longer has a final target for the natural rate of unemployment. Prior to the 2020 recession, unemployment was historically low, causing no inflation. Instead, the Fed is now looking at a wide range of information rather than relying on a single unemployment target.

How the Fed Conducts Monetary Policy

To bring down the unemployment rate, the FOMC uses an expansionary monetary policy. This stimulates economic growth by increasing the money supply and lowers rates to spur economic growth and reduce unemployment.

If the economy grows too fast, then prices rise, causing inflation. To combat inflation, the FOMC uses a contraction of monetary policy. This makes money more expensive, slowing down the economy. A slowing economy means businesses cannot afford to raise prices without losing customers. They may even lower their prices to attract customers. It fights inflation.

The committee regulates interest rates by setting a target level for the federal funds rate. This is the rate that banks charge each other for overnight loans, called federal funds. Banks use federal funds loans to make sure they have enough cash to meet the Fed's reserve requirement. Banks must keep this reserve overnight at the local Fed bank or cash in their vaults.

While the FOMC sets a target level for the federal funds rate, the banks actually set the rate themselves. The Fed is putting pressure on banks to meet the target through open market operations. The Fed buys securities, usually Treasury bills, from member banks. When the Fed wants the rate to go down, it buys securities from banks. In return, she replenishes their reserves by giving the bank more federal funds than it wants. Banks cut the federal funds rate to lend out this additional reserve.

Conversely, when the Fed wants to raise the rate, it replaces bank reserves with securities. This reduces the amount available for lending, forcing banks to raise rates.

To combat the 2008 financial crisis, the FOMC significantly expanded its use of open market operations. This is called quantitative easing (QE). To achieve its goals, the Fed has purchased vast amounts of Treasury notes and mortgage-backed securities. In March 2020, the Fed resumed QE to fight the recession caused by the global health crisis.

How does the FOMC affect you?

The FOMC influences you through its control of the federal funds rate. Banks use this rate to determine all other interest rates. As a result, the federal funds rate controls the availability of money to invest in homes, businesses, and ultimately your paycheck and investment income. This directly affects the value of your retirement portfolio, the value of your next mortgage, the sale price of your home, and the potential for your next raise.

Pay close attention to FOMC meeting announcements so you can anticipate economic changes and take steps to strengthen your personal finances.

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ETFS VS MUTUAL FUNDS: WHAT'S THE DIFFERENCE?

ETFS VS MUTUAL FUNDS: WHAT'S THE DIFFERENCE?

ETFs and Mutual Funds: An Overview

There are fundamental differences between mutual funds and exchange-traded funds (ETFs) that investors should be aware of before choosing which one will work best for their financial goals. Each type of fund has its own advantages and disadvantages. More importantly, mutual funds and ETFs can be used together to create a diversified portfolio.

Key Findings

When you buy a mutual fund, you pay the net asset value (NAV) of the shares in the fund, but when you buy an ETF, you pay the market. price.

ETFs typically have lower expense ratios than most mutual funds, which can give an investor a slight return advantage over index funds.

Mutual funds can be either passively managed or actively managed, while most ETFs are passively managed.

A portfolio of both mutual funds and ETFs can offer you more variety and further mitigate the risks that naturally come with investing.

Exchange-traded funds

Exchange Traded Funds (ETFs) can be traded throughout the day, so you can see the value of your ETF fluctuate as you trade. When you buy an ETF, you are buying it at the current market price. You can buy one or as many shares as you can afford at the current price.

ETFs typically have lower expense ratios than most mutual funds. Theoretically, this could provide the investor with a slight yield advantage over index funds. For example, the Vanguard S&P 500 ETF (VOO) expense ratio is 0.03%, while the Admiral Shares (VFIAX) version of the mutual fund has an expense ratio of 0.04%, although both funds have almost the same returns,

ETFs are a new version of funds designed to democratize access to investment through lower fees than mutual funds. Fractional investment fund shares also allow investors to buy a portion of an ETF rather than a whole unit.

Make sure you have a full range of stocks from different industries that match your risk tolerance and goals.

Mutual funds

You can buy a mutual fund at any time of the day, but fund managers cannot make transactions within the fund until the end of the day. The price at which you buy or sell a mutual fund is not the price, but the net asset value (NAV) of the shares that make up the fund. When you invest in your mutual fund, your money is used to trade the fund's NAV at the end of the trading day.

For example, mutual funds typically have a minimum buy-in of, say, $3,000. So if a stock is worth $100, you are buying 30 shares.

Mutual funds can be either passively or actively managed, while there are very few actively managed ETFs. ETFs tend to be passively managed, which makes them most similar to index mutual funds.

Most brokers do not allow you to set automatic payments on ETFs as they trade differently.

Mutual funds usually allow you to set up automatic investing because you give them a dollar amount that buys a certain number of shares.

Special Considerations

Both mutual funds and ETFs allow you to purchase a basket of securities in a single purchase. They both typically invest for a stated or implied purpose such as growth, value, or income. In addition, they usually invest in a specific category of stocks or bonds, such as large company stocks, foreign stocks, or medium-term bonds.

ETFs are a newer version of funds designed to democratize access to investment through lower ETF prices and fees than mutual funds. A recent fractionation phenomenon made possible by technology now allows you to buy a fraction of an ETF instead of a whole unit at the same price as a stock.

You can use mutual funds and ETFs to diversify your portfolio. However, you can also use both of them to complement each other. For example, some investors prefer to use ETFs for industry funds and mutual funds for actively managed ones.

Index-based ETFs are usually cheaper, so you can buy them if you are on a tight budget. For example, the Vanguard S&P 500 ETF (VOO) price was around $407 on August 10, 2021, while the Admiral Shares Mutual Fund (VFIAX) version of the same index has a floor price of $3,000.

Which is better - ETF or mutual fund?

You can achieve variety by using one or the other. A portfolio of both funds can offer you even more variety and further mitigate the risks that naturally come with investing. In addition, mutual funds and ETFs offer different prices, costs, and ways to make your money grow.

Which ETF does Warren Buffett recommend?

Some ETFs track the S&P 500 Index, such as the S&P 500 SPDR (SPY) or the iShares Core S&P 500 Index (IVV).

Why are mutual funds bad?

The negative aspects of mutual funds include higher expense ratios and various (sometimes hidden) back or front loading fees.

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9 THINGS PEOPLE DON'T KNOW ABOUT ROTH IRAS

9 THINGS PEOPLE DON'T KNOW ABOUT ROTH IRAS

Roth Iras are powerful and flexible financial planning tools. They are also complex; Many people are not familiar with all aspects of the Roth IRAS, here are nine facts about the Roth IRAS that may surprise you and influence your retirement decisions.

9 THINGS PEOPLE DON'T KNOW ABOUT ROTH IRAS


Roth IRA contributions can be used as emergency funds

Roth contributions are non-deductible. The advantage of this is that you can withdraw your contributions at any time for any reason and no taxes or penalties apply. With this liquidity, the Roth IRA can be your emergency fund.

However, before planning to use Roth for these purposes, please be aware that the definition of “contributions” does not include amounts converted to Roth and does not include investment income.

For example, if you deposit $5,500 and the amount grows to $6,000, you can withdraw $5,500 in contributions without taxes or penalties, but taxes and penalties may apply if you withdraw $500 in profits.

Some may use a non-deductible IRA to fund Roth

If you make too much money, you can't contribute to the Roth IRA - or can you? Some people who have all their other retirement money in qualified retirement accounts can make a non-deductible IRA contribution each year and then convert it to Roth, thereby adding to their Roth IRA each year. This is sometimes called "backdoor Roth".

The key to making this work without paying additional taxes is to make sure you don't have other IRA accounts. In some cases, you can even transfer a self-directed IRA back to a company plan so that you can use Roth's backdoor strategy in later years without having to pay taxes on the converted amount.

You can transfer your 401(k) after-tax contributions to a Roth IRA

Many employer plans allow you to make after-tax contributions. Upon retirement, these post-tax contributions can be transferred directly to a Roth IRA. Any investment income from after-tax contributions cannot be carried over to Roth, but amounts you have contributed can.

If your employer's plan offers this option, you can accumulate after-tax savings and then use them to fund a future Roth IRA. This is beneficial in retirement because withdrawals from a Roth IRA are tax-free and do not affect other items on your tax return as withdrawals from a traditional IRA do.

Roth IRAs do not have mandatory minimum distributions (RMDs)
One of the great things about Roth IRAs is that, unlike traditional IRAs, there is no age when you should start withdrawing money. This means there is no pending tax bomb waiting for you at Roth.

However, heirs who are not your spouse will be required to receive mandatory payments from Roth, but these payments will not be taxed.

You can contribute to SIMPLE IRA and Roth IRA

If your adjusted gross income is below the Roth IRA contribution limit, you can contribute to the Roth IRA as well as the SIMPLE IRA to maximize your retirement savings. SIMPLE contributions will be deductible, but Roth contributions will not.

This dual funding strategy gives you the opportunity to reduce your taxable income now and save some of the funds in Roth for tax-free retirement benefits. This can be beneficial for those who work for themselves and try to save as much as possible for the future.

Your employer's plan may allow Roth contributions

Many 401(k) plans offer the option to make Roth contributions. This is called a Roth Assigned Account. Check with your employer to see if their plan gives you a choice of contribution types.

In some plans, this must be all Roth or all tax-deductible contributions; other plans allow you to do some of them. If your employer's plan does not currently allow Roth contributions, ask them to add this option the next time they make changes to their plan.

Age is not the most important factor in determining whether you should finance Roth
Conventional wisdom says that the younger you are, the more time you have to tax-free grow money in Roth. It's true, more time makes Roth better, but age is not the primary factor to use when deciding whether to top up an IRA or a Roth IRA. The main factor is your tax bracket – both your marginal tax rate now and your expected marginal rate at retirement.

If your expected retirement tax rate is lower than your current tax rate, deductible contributions may be better. If your retirement tax rate will be the same or higher - which is often the case for those with large 401(k) or IRA accounts - then Roth accounts may make a lot of sense to you.

You can make a matrimonial Roth contribution

Even if your spouse has no income, if you have income, you can make an IRA contribution on their behalf. This is called a spouse contribution to an IRA. Many couples can double their savings in a tax-adjusted retirement account by taking advantage of this benefit.

Ask your accountant or financial advisor if your financials are such that you qualify for a Roth Spousal Contribution.

Roth conversion calculators miss some points

You can convert traditional IRA or 401(k) money to Roth. Many online calculators calculate the results of such an operation to help you understand if it makes sense for you. However, these online Roth conversion calculators miss a lot.

For example, they don't take into account the impact of future mandatory IRA withdrawals and how that affects your Social Security taxation. Roth can help reduce this impact. All things considered, in many cases the Roth conversion can be more profitable than what online calculators suggest.


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8 BUYING MISTAKES THAT COULD COST YOU YOUR NEW HOME

8 BUYING MISTAKES THAT COULD COST YOU YOUR NEW HOME

Few homebuyers consider the possibility of losing their home. But mistakes happen. Some of them are difficult to avoid - they are the result of bad advice, bad luck or a market crash. However, many mistakes can be avoided with just a little extra knowledge.

Here are eight easy-to-avoidable mistakes that can take you out of your home before you've even had a chance to enjoy it.



Choosing Bad Agents

Not all real estate agents are equally qualified just because they have a real estate license. While some may know the territory and pursue your interests, many are ill-informed or working to ensure the seller gets the most out of the sale.

Given this reality, here are a few key steps to take when choosing an agent:

Interview your agent and don't worry about the possibility of offending them by asking difficult questions or clarifying answers.

Avoid hiring the cheapest and most active agent you can find, regardless of experience, because you think that agent will work harder for you.

Be sure to subscribe to the buyer's broker. agreement.

Once you have signed a contract with an agent, stick to it. Avoid the mistake of going directly to the listing agent for the home you decide to buy and asking that agent to write a purchase offer for you.

Cutting savings
How much should you spend on your new home? Simple answer: you should spend as much as you can afford.

If you're investing every cent you can scrape together in downpayment for a new home, borrowing money from relatives to pay closing costs, and planning to charge all repairs and future maintenance on a credit card, you're spending too much.

Do you need to cash out your retirement accounts to make ends meet? Not worth it.

Attending seminars “Without money down”
Free seminars can seem like a great way to learn about real estate. After all, you have nothing to lose but time, right?

In fact, many of these seminars usually go something like this: First, you call a toll-free number to book a table. Then you sit down for a three hour presentation of books, cassettes, CDs and special discounted services offered by seminar gurus who have most likely never bought or sold real estate in their lives. But they hope to capitalize on your vulnerability.

If you follow the advice of your so-called guru, you may find yourself making dozens of low offers that get rejected until you find a seller who takes over all the financing at 18% per annum with a three-year balloon payment.

As a result, you will lose much more than time, and everyone else, including the “guru” and the bank, will profit from your mistakes.

Refusal of professional advice

If you are a real estate expert, you would not be reading this article. This means that you will likely need professional advice when drafting a loan and mortgage agreement. Here are some ways to get started:
Look for information on the Internet. Of course, make sure you visit reputable sites.

Read real estate books.

Hire a lawyer and an accountant for advice - and listen to them.

Picking the wrong area
The three most important words in real estate are location, location, location. This means that even a great home in a bad neighborhood can be a bad investment.

How do you know if an area is bad? Sometimes this is obvious, but a little research can also be very helpful. Try doing the following:

Ask the police about crime statistics.


Talk to neighbors before buying.


Walk around the neighborhood at various times of the day, looking for problems like litter in the yard or boarded up windows.

Compare the price of the house you are considering with the prices of other houses in the neighborhood. If it's priced thousands less than homes in areas you've been considering but can't afford, chances are the location is the problem.

Choice of "exotic" financing

The lower your monthly payment, the more money you will have to spend each month on other things. However, it is important to take a close look at the fine print describing very inexpensive loans that may look great today but could become a real problem in a year or two.

What's wrong with cheap loans? Rates on many so-called "exotic" loans start low and then skyrocket. Others are regulated, which means this year's low rate could become an exorbitant rate next year.

Cancellation of home inspection

No matter how beautiful it is, every house has its problems. While peeling paint and broken railings are visually obvious, a faulty roof, corroded pipes, problematic wiring, or an outdated heating system may go unnoticed. All this costs money.

So how do you spot problems, especially if they are hidden, hidden, or within walls?


A home inspection is your best tool for troubleshooting and qualified Home Inspectors are trained to check all systems, appliances and pipes. Of course, you won't give up on your dream home because it needs a new paint job, but you can negotiate a price or ask the owner to paint the house before buying.

What happens if you decide it's better to save the money you would spend on home inspections and buy a new barbecue grill instead? There's a good chance you won't notice that the interior walls are peeling off because a fresh coat of paint can do wonders.

Dive into debt after closing a deal

Now that you're a homeowner, you're baffled by all the home equity loan deals coming in the mail. They can be tempting: You can get all your capital and use this newfound money to buy everything you need that you have denied yourself and your family.

Vacationing in Hawaii next December sounds great to you. What about buying patio furniture, or maybe new decking or a backyard spa?

If this sounds like a great plan, think again. When you buy a new home, you are responsible for taking care of it and paying for your investment. If you get into debt, the first minor setback - like losing a job or having health problems - can send you into bail.

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7 GUARANTEED WAYS TO DESTROY YOUR WEALTH

7 GUARANTEED WAYS TO DESTROY YOUR WEALTH

Renowned investor and businessman Charlie Munger said that one of the best ways to learn how to achieve something is to turn it around and see what not to do. In that spirit, here are seven things you can do to destroy your wealth and ensure that you spend your life in far less abundance than you might enjoy.

7 GUARANTEED WAYS TO DESTROY YOUR WEALTH


1. Trade as often as possible

One of the surest ways to squander your wealth is to spend as much money as possible on commissions, fees, spreads, and other expenses. Every time you buy or sell shares, you incur some combination of these costs, and it doesn't take much to cause real damage. If you were to pay a $10 commission on buy and sell orders and buy and sell shares once a week, your commission would be $1,040. Even for a $100,000 portfolio, this would seriously degrade your results over time.

The damage is compounded if you hold assets through a broker, bank, trust, or wealth management department that charges you a fixed percentage of your assets, say 1% per year. Add to that the fees you pay on your mutual funds and don't know it, or the fees for selling funds that have loads, and you've succeeded in actually costing yourself money every year.

2. Build a portfolio of companies with a P/E ratio of at least 3 times that of the S&P 500

To really destroy your wealth, you need to overpay for everything. This means buying the most expensive stocks at the highest p/e prices possible, with no real hope of earning more than the long-term US government bond rate. It's not all bad though, because you'll get temporary pleasure from owning the incredibly "sexy" stocks that are constantly talked about on Wall Street and at cocktail parties.

3. Combine assets with tons of correlated risk

Another great way to hurt yourself and your hopes of financial independence is to build a collection of stocks and other assets that you have convinced yourself are diversified but actually have correlated risk. Imagine a person who has a portfolio of a dozen companies—McDonald's, Wendy's, Starbucks, IHOP, Yum, Sonic, Ruby Tuesday, Burger King, Panera Bread, California Pizza Kitchen, Chipotle Mexican Grill, and PF Chang. Then brag to all your friends that you own so many shares that not even the Great Depression could ruin you.

Obviously, in this case, the rise in the price of commodities by itself can destroy the profits from your shares. Another example would be a person who has a portfolio filled with stocks in banks and insurance companies - or just internet businesses.

4. Only buy stocks you don't understand

Who needs to listen to people like Warren Buffett when they constantly talk about the need to stay within their purview? If your broker or friends say the stock is up and you're ready to lose your proverbial short, buy it. After all, statistically they have a chance of being right one of the many times they roll the dice. It would be downright stupid to buy companies that make boring products like coffee, gaskets, and stationery when you can buy shares in military-grade satellite technology firms with factories in countries you honestly don't even know exist. suspect.

5. Buy stocks with high accruals and lots of stock options

When analysts talk about so-called earnings quality, they often recommend that investors buy stocks in companies that have cash flows that are close to their reported net income. In such companies, they reason, profits come in the form of cold, hard cash. Who needs it? For real wealth destruction, only buy companies where net income diverges wildly from the cash flow statement. Even better, look for disreputable executives who continually adjust depreciation rates or pension plan assumptions to drive reporting results. For the perfect icing on the cake, make sure they are compensated solely in the form of cheap stock options and own a very small stake in the company.

6. Pay the highest possible taxes and fines

Nothing will doom you to poverty faster than huge taxes and fines imposed by the state. The quickest way to bring them on is to get caught in a fiscal corner so you have to use your 401k or traditional IRA, paying income taxes that should have been paid in the first place, plus an additional 10% income tax penalty. . This method is especially effective for destroying wealth because you can destroy a portfolio of six or seven figures in a matter of seconds by simply allowing withdrawals.

7. Maximize non-deductible debt

The worst kind of debt - or if you're in the business of destroying wealth, you might say the best kind - is the one that is not tax deductible and has an extremely high interest rate. Chief among these is credit card debt, which can regularly reach 20-30%. If you really want to destroy your assets, there is no better way to do it than to top up your plastic card balance, especially when it comes to items that depreciate quickly, such as cheap furniture and electronics.


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6 WAYS TO RENT A HOUSE EVEN WITH BAD CREDIT

6 WAYS TO RENT A HOUSE EVEN WITH BAD CREDIT

Your credit score can play an important role in your ability to rent an apartment. Some landlords may reject your apartment rental application if you have a bad credit history, even if you have an impeccable rental history and a large salary. Others can check to see if you have a reprimand or other rent-related defect on your credit history.

If you're worried that a poor credit history will prevent you from finding a home, you can take one or more of the following steps to increase your chances of getting the home you want.

6 WAYS TO RENT A HOUSE EVEN WITH BAD CREDIT


Know what's on your credit history

Check your credit report before you start looking for an apartment so you know what's on your credit score. three major credit bureaus have created credit reports for you, and you should check all three because the landlord can access any of them.

If you find inaccurate information, it's time to use the credit report dispute process to correct the errors. The less negative information in your credit history, the more likely you are to get approved to buy an apartment.

Look for property owners who don't check credit history

The best way to get an apartment if you have bad credit is to find a landlord who doesn't check your credit. Apartment complexes owned by large property management companies usually require a credit check on all applications. Such managers are more likely to turn you down if you have bad credit.

Instead, look to properties owned by individual landlords who often don't do credit checks or may be more willing to take the risk of a tenant who doesn't have the best credit history but has a good rental history and a solid income.

There are several ways to find rental properties owned by a private individual.

Check Craigslist

In the housing section of Craigslist, owners post listings for rental housing (apartments, condominiums, townhouses, and houses). Years ago, very few apartment complex managers advertised for rent on Craigslist, and it was easier to find individual landlords. Now you will find all types of rentals. Landlords still post ads here, but you'll have to sift through a lot of ads to find them.

Make sure you are looking in the right place; You can change the capital region by clicking on the bar at the top center of the Craigslist page.

View ads

The classifieds section of your local newspaper (or the newspaper of the area you want to move to) is another place where property owners place ads for their homes. The Sunday paper usually has the most ads. Many newspapers also advertise online, so look into this option, especially if you're moving out of town.

Ask an agent

Ask a real estate agent in your area to find you an apartment to rent. Many homeowners, especially those who live outside the area, use real estate agents to rent out their property and pay the agent a commission on your rent.

Once you have contacted the property owner, ask him what criteria he uses to select tenants for rent. If a credit check is not one of them, then you will have less to worry about. However, if a credit check does take place, you have a few additional options to get approved.

Get a recommendation

Ask someone to vouch for you.

You are more likely to be denied a lease if you have unpaid overdue bills, especially to other landlords or utility companies. If you have past due bills on your credit history, pay them in full and ask the company to write a letter or print a statement that the bill is paid in full.

You can also try writing a letter explaining the situation that caused your financial problems. Divorce, medical bills, and job loss are common situations that lead to bad credit. Make sure your letter describes how you got your finances in order and why you might want to rent an apartment.

Be careful in the situations in which you use letters of recommendation. If the landlord has not checked your creditworthiness and does not know your credit history, he may be suspicious when you give him a letter describing your past financial problems. Landlords can get your permission before checking your credit history, so it won't be a surprise when they do.

Demonstrate sufficient income

Sufficient income can sometimes compensate for a negative credit history. First, you need to earn three to four times your monthly rent, not only to meet your landlord's requirements, but to be able to afford the payments. Second, you need solid proof of your income. Often, two to three months of a salary certificate confirming your stable income is enough.

Be prepared to pay more up front


Whether you manage to bypass the credit check altogether or get approved to buy an apartment despite your credit history, expect to pay more money up front. You may be required to pay a security deposit or one to three months' rent to move into your new apartment.

If you don't have the best credit history and are planning to move soon, start saving money now to help cover your higher upfront costs.

Ask a co-borrower to help you

Ask someone to sign your lease - this is the last option. Your co-borrower must meet the necessary credit requirements and therefore must have a good credit history.

Be aware that if you fall short of your payments or get evicted for any reason, the landlord can legally demand that the co-borrower pay back the rent. Therefore, it is wise to use someone else's credit sparingly and be even more careful with it than with your own.

Frequently Asked Questions (FAQs)

What can a landlord see during a credit check?
Your landlord can get a full credit report and see everything on it, including outstanding bills, late payments, debt collection activities, bankruptcies, and your overall credit score. The landlord will be most interested in things that can make you an unreliable or problematic tenant, such as delinquencies, criminal records, and bankruptcy.


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How long do evictions stay on your file?

While evictions do not show up on your credit history, they will show up on your rental history, which the landlord will likely check during the verification process. As a rule, they remain in your history for seven years.

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