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Secured and unsecure loan types

May 13th, 2011 No comments »

People will go to many lengths in order to survive, there is no stronger evidence to prove that people have the strongest will to survive in difficult times. This couldn’t be any truer when it comes to finances. Many people have at some point in their life come to the brink of losing everything or close to it. A lot of people turn to loans for help with their finances. There are a ton of loan options out there, no matter who you are or what your situation is, there is a place for you to borrow. From secured loans such as, car loans, mortgages, home equity loans, secured car title loan to unsecured line of credits, personal loans, student loans, credit cards etc… The questions is should you?

Secured loans, are loans that are given to you against an asset. Essentially, a company or bank will give you money for an asset of value as collateral. That way, if they don’t get their money, they will take your property. Typically, the interest on a secured loan should be at prime rate and rather low, this is of course depending on what your credit rating is, but usually if you are able to get a loan of this type, it’s because you have a decent standing. A car title loan, which I mentioned as a secure loan, is not a typical bank loan, but a separate private lending company that would lend you money against the title of your car. This kind of loans are not typical, but are an option for people who can’t get a bank loan or credit card. The interest on these kind of loans are typically higher than traditional secured loans.

Unsecured loans on the hand, are not secured against anything. If you happen to not pay back your loan, collectors will take over the account, as they have nothing to take from you. The loan is approved based on your credit rating an history, as well as income level. Interest rates are typically a little higher on an unsecured loan, therefore you will pay a slightly higher interest rate than a secured loan option.

People need different kind of loans for different reasons; some opt for a long term loan while others for a short-term payday loan. Your job is to do the research and find out what option is best for you. You may find in the end, that all you need is a credit card with a small balance to protect yourself in the case of an unforeseen emergency. Or you may need a larger loan in the form of home equity to get much needed renovations on your house. If you have bad credit and no one will lend you money, turn to a title loan. Whatever your fancy, there is something there out for everyone. The trick is to be able to determine the best choice for you and your situation. Taking out a loan can be a large responsibility, being prepared and strong willed is necessary to avoid over spending unnecessarily,  and making sure that you don’t fall into debt further more.

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Invest your savings

May 10th, 2011 No comments »

If you understand inflation, then you should understand why investing your money is better than simply saving it. In case you aren’t familiar with the basic of economics, inflation is the rise of prices over time. While saving your money in cash might seem like a wise thing to do for many, consider the translation between the inflation of prices each year and the cash money you have been saving.
Let’s just say that you have finally paid for all of your debts and cleared any credit card and payday loans you may have owed,  and you are now ready to begin saving money for for your future. Now, let’s move forward to thirty years later, you are 68 years old and you are ready to retire and enjoy your life. Let’s say, for the sake of the example that you had put away $1000, today( 30 years later) it would only be worth around $400, because of inflation, you have less than half of what you could have bought with your hard earned money.

Investing your money is a great way to beat the effects of inflation and probably a good reason to consider it seriously. Many people shy away from investing because they think it is too risky.  But when you consider inflation, investing will actually help to preserve the value of your money over time. When you invest right, you can instead help your $1000 investment grow faster and beat the rate of inflation, making it worth more in the long run. There are two things you can do in life to get paid, everyone no matter who you are, has the opportunity and the access to both. The primary way that most people make money is through a typical job, which pays you in exchange for you time, this unquestionably will limit the amount of money that you can make over time. The second way to make money, is by taking the money you saved from that paycheck and turning it into investments. This way you will make your money work hard for you, just as you worked hard to get it. Invest your money in things such as stocks, bonds, mutual funds, or real estate, all of these things involve some risk, but can and most likely will make you a lot of extra money to play with in the future.

Saving your money is the first step to take toward your future as an investor. Take care of any unpaid debt, or student loans and begin to take the necessary steps toward making your money work hard for you. Remember that although you may think that saving cash is a safe way to guarantee your money, you will only lose value over time. Investing will allow you to beat the adverse affects of inflation and allow you to maintain or multiply the value of your hard earned money.

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When should I seek debt advice?

May 6th, 2011 No comments »

Most of us will come up against some kind of financial difficulty at least once in our lifetime. Whether that’s an overdraft you can’t seem to clear, a missed bill, payaday loan payments or problems with your mortgage payments, it can be worrying – but at what point do you decide that help is needed?

There is plenty of help out there, for varying degrees of difficulty with debt and for all kinds of personal circumstances. Even if you have debts you don’t think you’ll ever be able to repay, there are solutions available that might be able to help you.

You probably don’t need telling that you should get debt advice as soon as you realise you’re struggling with your debts. However, even if you’re not really struggling now, there may be signs that you could benefit from a bit of advice.

Early signs of a debt problem
Here are some of the things you should look out for.

- You’re always in your overdraft before the end of the month
- You have credit card debts that are taking a very long time to repay
- You frequently have to ‘borrow’ money from next month’s pay to get by
- You don’t have much money left after paying for bills and other commitments.

If you can say yes to any of the above, then you should be careful. A sudden change in your circumstances could make it very difficult to manage your debts. But rather than waiting for it to get to that point, why not do something about it now?

Getting back on top of your finances
As long as your situation hasn’t become too serious, there may be a few things you can do to set yourself on the road to clearing your debts.

Budgeting
Sometimes, people get into trouble just because they haven’t planned their finances properly. But by ensuring you always set enough aside for your essential expenses, a well-planned budget could make all the difference.

Creating a budget is simple: just add up your essential expenses and subtract the total from your take-home pay. Make sure you include your debt repayments in your expenses. If you find that your outgoings exceed your income, get expert advice immediately.

Cutting back
Cutting back on a few things you don’t need could leave you with a lot more room for repaying your debts. For example, cancelling that unused gym membership or getting rid of an unnecessary TV subscription could free up a lot of cash.
If necessary – get debt advice
If none of the above advice helps you, it may be a good idea to get debt advice from an expert. There are various debt solutions available to help people in all kinds of circumstances, and by talking to an expert debt adviser you can find out which one might be right for you.

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Stock Market Indicators, part 2

November 17th, 2010 No comments »

The three most popular stock market indicators in the second group are the Dow Jones Industrial Average, the Standard & Poor’s 500, and the Value Line Composite Average. The DJIA is constructed from 30 of the largest blue chip industrial companies traded on the NYSE. The companies included in the average are those selected by Dow Jones & Company, publisher of the Wall Street Journal. The S&P 500 represents stocks chosen from the two major national stock exchanges and the over-the-counter market. The stocks in the index at any given time are determined by a committee of Standard & Poor’s Corporation, which may occasionally add or delete individual stocks or the stocks of entire industry groups. The aim of the committee is to capture present overall stock market conditions as reflected in a very broad range of economic indicators. The VLCA, produced by Value Line Inc., covers a broad range of widely held and actively traded NYSE, AMEX, and OTC issues selected by Value Line.
In the third group we have the Wilshire indexes produced by Wilshire Associates (Santa Monica, California) and Russell indexes produced by the Frank Russell Company (Tacoma, Washington), a consult- ant to pension funds and other institutional investors. The criterion for inclusion in each of these indexes is solely a firm’s market capitalization. The most comprehensive index is the Wilshire 5000, which actually includes more than 6,700 stocks now, up from 5,000 at its inception. The Wilshire 4500 includes all stocks in the Wilshire 5000 except for those in the S&P 500. Thus, the shares in the Wilshire 4500 have smaller capitalization than those in the Wilshire 5000. The Russell 3000 encompasses the 3,000 largest companies in terms of their market capitalization. The Russell 1000 is limited to the largest 1,000 of those, and the Russell 2000 has the remaining smaller firms.
Two methods of averaging may be used. The first and most common is the arithmetic average. An arithmetic mean is just a simple average of the stocks, calculated by summing them (after weighting, if appropriate) and dividing by the sum of the weights. The second method is the geo- metric mean, which involves multiplication of the components, after which the product is raised to the power of 1 divided by the number of components.

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Stock Market Indicators, part 1

November 16th, 2010 No comments »

Stock market indicators have come to perform a variety of functions, from serving as benchmarks for evaluating the performance of professional money managers to answering the question, “How did the mar- ket do today?” Thus, stock market indicators (indexes or averages) have become a part of everyday life. Even though many of the stock market indicators are used interchangeably, it is important to realize that each indicator applies to, and measures, a different facet of the stock market.
The most commonly quoted stock market indicator is the Dow Jones Industrial Average (DJIA). Other popular stock market indicators cited in the financial press are the Standard & Poor’s 500 Composite (S&P 500), the New York Stock Exchange Composite Index (NYSE Composite), the NASDAQ Composite Index, and the Value Line Composite Average (VLCA). There are a myriad of other stock market indicators such as the Wilshire stock indexes and the Russell stock indexes, which are followed primarily by institutional money managers.
In general, market indexes rise and fall in fairly similar patterns. Although the correlations among indexes are high, the indexes do not move in exactly the same way at all times. The differences in movement reflect the different manner in which the indexes are constructed. Three factors enter into that construction: the universe of stocks represented by the sample underlying the index, the relative weights assigned to the stocks included in the index, and the method of averaging across all the stocks.
Some indexes represent only stocks listed on an exchange. Examples are the DJIA and the NYSE Composite, which represent only stocks listed on the NYSE or Big Board. By contrast, the NASDAQ includes only stocks traded over the counter. A favorite of professionals is the S&P 500 because it is a broader index containing both NYSE-listed and OTC-traded shares. Each index relies on a sample of stocks from its universe, and that sample may be small or quite large. The DJIA uses only 30 of the NYSE-traded shares, while the NYSE Composite includes every one of the listed shares. The NASDAQ also includes all shares in its universe, while the S&P 500 has a sample that contains only 500 of the more than 8,000 shares in the universe it represents.
The stocks included in a stock market index must be combined in certain proportions, and each stock must be given a weight. The three main approaches to weighting are: (1) weighting by the market capitalization, which is the value of the number of shares times price per share; (2) weighting by the price of the stock; and (3) equal weighting for each stock, regardless of its price or its firm’s market value. With the exception of the Dow Jones averages (such as the DJIA) and the VLCA, nearly all of the most widely used indexes are market-value weighted. The DJIA is a price-weighted average, and the VLCA is an equally weighted index.
Stock market indicators can be classified into three groups: (1) those produced by stock exchanges based on all stocks traded on the exchanges; (2) those produced by organizations that subjectively select the stocks to be included in indexes; and (3) those where stock selection is based on an objective measure, such as the market capitalization of the company. The first group includes the New York Stock Exchange Composite Index, which reflects the market value of all stocks traded on the NYSE. While it is not an exchange, the NASDAQ Composite Index falls into this category because the index represents all stocks traded on the NASDAQ system.

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Summary of required rate of return

November 16th, 2010 No comments »

The overall required rate of return on alternative investments is determined by three variables: (1) the economy’s RRFR, which is influenced by the investment opportunities in the economy (that is, the long-run real growth rate); (2) variables that influence the NRFR, which include short-run ease or tightness in the capital market and the expected rate of inflation (notably, these variables, which determine the NRFR, are the same for all investments); and (3) the risk premium on the investment. In turn, this risk premium can be related to fundamental factors, including business risk, financial risk, liquidity risk, exchange rate risk, and country risk, or it can be a function of systematic market risk (beta).
Measures and Sources of Risk    We have examined both measures and sources of risk arising from an investment. The measures of risk for an investment are:
? Variance of rates of return
? Standard deviation of rates of return
? Coefficient of variation of rates of return (standard deviation/means)
? Covariance of returns with the market portfolio (beta)
The sources of risk are:
? Business risk
? Financial risk
? Liquidity risk
? Exchange rate risk
? Country risk

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Market Capitalization

November 16th, 2010 No comments »

Market capitalization is defined as the total dollar value of a stock’s out- standing shares and is computed by multiplying the number of outstanding shares by the current market price. Thus, market capitalization is a measure of corporate size. With approximately 8,500 stocks available to trade on U.S. stock exchanges, many traders judge a company by its size, which can be a determinant in price and risk. In fact, there are four unofficial size classifications for U.S. stocks: blue chips, mid-caps, small caps, and micro-caps.
1. Blue-chip stocks. Blue chip is a term derived from poker, where blue chips in a card game hold the most value. Hence, blue-chip stocks are those stocks that have the most market capitalization in the market- place (more than $5 billion). Typically they enjoy solid value and good security, with a record of continuous dividend payments and other desirable investment attributes.
2. Mid-cap stocks. Mid-caps usually have a bigger growth potential than blue-chip stocks but they are not as heavily capitalized ($500 million to $5 billion).
3. Small-cap stocks. Small caps can be potentially difficult to trade be- cause they do not have the benefit of high liquidity (valued at $150 million to $500 million). However, these stocks, although quite risky, are usually relatively inexpensive and big gains are possible.
4. Micro-cap stocks. Micro-caps, also known as penny stocks, are stocks priced at less than $2 per share with a market capitalization of less than $150 million.
Some traders like to trade riskier stocks because they have the potential for big price moves; others prefer the longer-term stability of blue-chip stocks. In general, deciding which stocks to trade depends on your time availability, stress threshold, and account size.

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Life cycle investment goals

November 15th, 2010 No comments »

During the investment life cycle, individuals have a variety of financial goals. Near-term, high-priority goals are shorter-term financial objectives that individuals set to fund purchases that are personally important to them, such as accumulating funds to make a house down payment, buy a new car, or take a trip. Parents with teenage children may have a near-term, high- priority goal to accumulate funds to help pay college expenses. Because of the emotional importance of these goals and their short time horizon, high-risk investments are not usually considered suitable for achieving them.
Long-term, high-priority goals typically include some form of financial independence, such as the ability to retire at a certain age. Because of their long-term nature, higher-risk investments can be used to help meet these objectives.
Lower-priority goals are just that—it might be nice to meet these objectives, but it is not critical. Examples include the ability to purchase a new car every few years, redecorate the home with expensive furnishings, or take a long, luxurious vacation.
A well-developed policy statement considers these diverse goals over an investor’s lifetime. The following sections detail the process for constructing an investment policy, creating a port- folio that is consistent with the policy and the environment, managing the portfolio, and monitoring its performance relative to its goals and objectives over time.

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The value of a good or service is subjective

July 8th, 2010 No comments »

Preferences differ, sometimes dramatically, between individuals. How much is a ticket to see a performance of the Bolshoi Ballet worth? Some people would be willing to pay a very high price, while others might prefer to stay home, even if tickets were free! Circumstances can change from day to day, even for a given individual. Alice, a ballet fan who usually would value the ticket at more than its price of $100, is invited to a party and suddenly becomes uninterested in attending the ballet. Now what is the ticket worth? If she knows a friend who would give her $40 for the ticket, it is worth at least that much. If she advertises the ticket on eBay and gets $60 for it, a higher value is created. But if someone who doesn’t know of the ticket would have been willing to pay even more, then a potential trade creating even more value is missed. If that particular performance is sold out, perhaps someone in town would be willing to pay $120. One thing is certain: The value of the ticket depends on several things, including who uses it and under what circumstances.
Economics recognizes that people can and do value goods differently. Mike may prefer to have a grass field rather than a parking lot next to his workplace and be willing to bear the cost of walking farther from his car each day. Kim, on the other hand, may prefer the parking lot and the shorter walk. As a science, economics does not place any inherent moral judgment or value on one person’s preferences over another’s-in economics all individuals’ preferences are counted equally. Because the subjective preferences of individuals differ, it is difficult for one person to know how much another will value an item. Think about how hard it is to know what would make a good gift for even a close friend or family member. Thus, arranging trades, or otherwise moving items to higher valued users and uses, is not a simple task. The entrepreneurial individual, who knows how to locate the right buyers and arranges for goods to flow to their highest valued use, can sometimes create huge increases in value from existing resources. In fact, people moving goods toward those who value them most and combining resources into goods that individuals value more highly is a primary source of economic progress.

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Incentives matter-choice is influenced in a predictable way by changes in incentives

July 4th, 2010 No comments »

This is probably the most important guidepost in economic thinking. It is sometimes called the basic postulate of all economics. As the personal benefits from an option increase, a person will be more likely to choose it. On the other hand, as the personal costs associated with an option increase, a person will be less likely to choose it. This guidepost also applies to groups of people, and suggests that making an option more beneficial will predictably cause more of them to choose it. Similarly, making an option more costly will cause fewer of them to choose it.
This basic idea is a powerful tool because its usefulness is practically universal. Incentives affect behavior in virtually all aspects of our lives, ranging from market decisions about what to buy to political choices concerning for whom to vote. If beef prices rise, making beef consumption more expensive relative to other goods, consumers will be less likely to buy it. The “incentives matter” postulate also explains why a person would be unlikely to vote for a political candidate who, if elected, would raise taxes to fund a new government program he or she didn’t like very much.
Most errors in economic reasoning occur because people overlook this postulate or fail to apply it consistently. With economic applications generally focusing on people trying to satisfy material desires, casual observers often argue that incentives matter only in cases of human selfishness. This view is false. People are motivated by a variety of goals, some humanitarian and some selfish, and incentives matter equally in both. Even an unselfish individual would be more likely to attempt to rescue a drowning child from a threefoot swimming pool than the rapid currents approaching Niagara Falls. Similarly, people are more likely to give a needy person their hand-me-downs rather than their favorite new clothes.
It is clear that incentives, whether monetary or nonmonetary, matter in human decision making. People will be less likely to walk down a dark alleyway than a well-lit one; they will be more likely to take a job if it has good benefits and working conditions than if it doesn’t; and they will be more likely to bend down and pick up a quarter lying on the sidewalk than they will a penny. Even a person who normally bends down to pick up pennies on the sidewalk probably would be less likely to if late for an important appointment, or on a first date.
Just how far can we push the idea that incentives matter? If asked what would happen to the number of funerals performed in your town if the price of funerals rose, how would you respond? The “incentives matter” postulate predicts that the higher cost would reduce the number of funerals. While the same number of people will still die each year, the number of funerals performed will still fall as more people choose to be cremated or buried in cemeteries in other towns. Substitutes are everywhere-even substitutes for funerals.

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