Finance 101: Liquidity

Nov 7, 2016 by

What is Liquidity? Liquidity is the ability to easily access the assets that make up your net worth.  If you are able to easily convert an asset into cash, it is considered to be liquid.  If you are not able to easily convert it to cash, it is not liquid.   What are examples of liquid assets? Saving / Checking Accounts With the exception of any monthly limitations, you can always withdraw money from a savings or checking account when in need.   Taxable Investment Accounts Taxable investment accounts are considered liquid as you can simply sell your investments whenever you need access to your funds.   What are examples of non-liquid assets? Your House Your home is considered a non-liquid asset because it cannot be easily converted into cash.  Although you can sell it...

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Finance 101: Money Markets

Oct 18, 2016 by

What’s a money market?  A money market is the financial sector where large institutions buy and sell quick maturing assets. The assets traded are essentially IOU’s from institutions and the government and are considered a very safe investment.  These assets are considered wholesale as they are in large denominations and are traded between the large organizations.   Who participates in the money market? The actual “money market” is only available to large financial organizations. Traditionally the money market has been a place for large institutions to manage their short term cash requirements.  Typically the value of assets traded range between 5 million and 1 billion dollars. This high price points limits access to everyday investors like us. However, the assets in the money market are consider extremely safe and are very liquid.  The security mature anywhere from...

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Finance 101: Dividend Yield

Jul 28, 2016 by

If you invest in individual stocks, the dividend yield is a key metric that you will want to consider. What is Dividend Yield? Mathematically Dividend Yield is the ratio of annual dividends paid to share price of the stock. The higher the dividend yield, the greater “bang for your buck” an investment will give you. Let’s take the example of two people with  $1,000 to invest. If person A puts their money in a stock with a dividend yield of 5%, they will receive a total of $50 for the year. If person B puts their money in a stock with a 3% dividend yield, they will only receive $30 in dividends for the same year. Although both people invest $1,000, the investor with the high dividend yield investment receives more in dividend payments....

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Finance 101: Expense Ratios

Jun 21, 2016 by

Expense Ratios Are you considering investing in a mutual fund? If so, expense ratios are something you will definitely want to understand. So, what are they?  An expense ratio is the associated cost with owning a mutual fund.  Mutual funds have fees because it costs investment companies money to operate them.  Unlike stocks, they are operated by a fund manager actively who buys and sells the stocks that make up the mutual fund. How much does this cost you?  If you take a fund’s expense ratio and multiply it by the total amount you have invested, the result is the year-end cost you will have to pay to own that fund.  Consider this example.  If you decide to invest $1,000  in a mutual fund with an expense ratio of  0.5%, you will pay a fee of...

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Finance 101: 401(k) vs. IRA

May 15, 2016 by

What’s the difference between a 401(k) and an IRA? This can be a point of confusion for many beginning investors.  Although both 401(k)s and IRAs are retirement investment vehicles, they are not the same thing.  Let’s breakdown the differences. What’s a 401(k)? A 401(k) is a retirement investment account that is setup by your employer.  What’s nice about it is that you pick a specific percentage of your salary that you want to go directly into your investment account. Once you establish the percentage, your contributions are now on auto pilot.  This is great because you can set it and forget it. Another perk of these accounts is that sometimes employers will match a certain percentage of your contributions to your 401(k).  For example, your company may match your contribution up to the first 4% of what you put in.  If you are unsure if your company has this matching...

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Finance 101: Investment Fees

May 9, 2016 by

Impact of Investment Fees You may be asking yourself what the big deal is about investment fees. The truth is, investment fees are a BIG DEAL.  Our opinion is that the greatest predictor in personal portfolio performance is investment fees. An investment fee of 1% may seem like pocket change, but could lead to thousands (if not hundreds of thousands) of dollars lost! Funds that charge high fees will only be worth the cost if they can beat the market year in and year out.  The chances of even the smartest fund managers doing this is practically zero.  For instance, take a fund manager that charges 1%.  If the manager is unable to beat the market by 1% every year, their fees are a waste of money.  The best strategy for everyday investors like us is...

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