Frequently Asked Questions

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The term “Bear Market” signifies a down-trending stock or bond market over a period of months.

A quick price drop in the major indexes is not a bear market, but a continuing drop of 20% or more over a few months would be considered a bear market.

Investors who are pessimistic & believe the markets are going to trend down are known as being “bearish”.

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Category: Investments

No. Assets held in a bank money market account (MMA) at an FDIC insured bank are federally insured and represent actual dollars on deposit.

Money market accounts sold by brokerage firms are a type of mutual fund and their share value can fluctuate based on the value of the underlying assets.

FDIC insurance is not unlimited. It is subject to certain dollar limits per depositor and total coverage in any one bank can be affected by type of account (e.g. single, joint ownership, trust) as account balances for insurance purposes are tallied per depositor in each bank.

It is rare, but there have been historical instances when mutual fund money market accounts have “broken the dollar.” Brokerage based MMAs are insured by the Securities Investment Corporation (SIPC) , not the federal government.

Financial firms offering MMAs make every effort they can to maintain the dollar per share valuation.

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Yes you can. Credit Unions are membership organizations so you will need to be a member or join before applying.

Credit Unions offer savings & checking accounts, auto loans, mortgages, personal loans and credit cards to their members

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Category: Investments

Angel investors are private investors. They invest in startup companies at the very earliest stages and take significant risk in the hopes of significant reward.

Angel investors typically provide the “seed funding” capital that allows an entrepreneur to take his/her business to the next level. The business being funded may or may not yet have revenue of its own.

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12b-1-mutual-fund-feesMutual Fund companies charge fees to cover their operational & marketing expenses.

The 12b-1 fee covers distribution & marketing costs incurred by the fund, including commissions paid to brokers.

12b-1 fees are included in the calculation of the Expense Ratio for the mutual fund and are required to be disclosed in the Prospectus for the fund. These fees are charged as a percentage of the assets in the fund.

All fees reduce your overall annual returns and can vary widely from one fund to another, so prudent investors research fees before investing in a fund.

Some funds temporarily reduce or eliminate 12b-1 fees as a way to lower fees & show improved returns, but be careful because these fee reductions will expire at some point & reduce your returns accordingly.

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Categories: Investing, Investments

bear-marketBear Markets are stock markets that are trending down over a period of time.

When prices drop by 20% from the previous high point in the market, investors identify it as a Bear market.

Investors who have a gloomy outlook about investing trends, are considered to be “Bearish.”

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dogs-of-the-dowDogs of the Dow is an investment strategy for buying and selling dividend paying stocks.

This strategy uses a stock’s Dividend Ratio as the basis for decisions to buy or sell.

Investors purchase the 10 stocks in the Dow Jones Industrial Average (DJIA) that have the highest dividend payout ratio. Each year investors buy, hold or sell their stocks according to the stocks’ latest divided ratios.

Investors who use dividend payout strategies are looking at the total annual yield on the stock, including both dividends & capital appreciation.

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bond-rating-agenciesBonds are a form of long term debt and investors who own them need to know about the financial stability of the issuer and its ability to repay the debt.

Rating agencies evaluate the financial strength of bond issuers (governments and corporations) and issue an alpha numeric rating that indicates the level of risk associated with the bond.

The three rating agencies that are often referenced are:

Standard & Poor’s
Moody’s
Fitch Ratings

Each rating agency has a slightly different rating scale (e.g., AAA, BBB, aa1) that quickly illustrates their opinion of the relative financial risk associated with the bond.

Bond ratings affect the interest rate paid and also indicate whether the bond is considered investment grade or non-investment grade (higher risk to the bond investor).

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DividendsDividends are payments made to shareholders to distribute a corporation’s earnings.

Dividends are usually considered taxable income to the shareholder when they are paid out.

Dividends are calculated based on the number of shares outstanding of each class of stock. A pro-rata share of the company’s earnings are paid out to shareholders as dividends.

The decision to pay dividends and the amount of earnings to pay as dividends is determined by the Board of Directors.

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Category: Investments

ROI-Return-on-InvestmentThe acronym ROI stands for Return on Investment and refers to the financial gain obtained from making an investment of some kind.

It usually refers to the profit made on the capital invested in some type of business venture or the financial gain earned from investing in a stock or other asset.

In business or investment circles it is used to forecast which investment or expenditure of capital will have the highest reward in a specified period of time.

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Category: Investments

Credit union financial services list checking saving IRA CDsCredit Unions are nonprofits formed by members who have something in common. Unions, religious organizations and local government employee groups are all common examples of groups who form credit unions.

Credit unions are membership organizations whose purpose is to provide financial services, such as loans, checking or savings accounts to its members.

Interest rates can be more advantageous at credit unions, so they are worth taking a comparative look at if you qualify for membership.

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Category: Investments

dow-jones-industrial-index-djiaCommonly referred to as the “Dow” or Dow Industrials” this stock index tracks the performance of 30 large companies in a variety of industries, including telecommunications, retail & consumer goods.

It was first created in 1896 by Dow Jones & Company, the publisher of the Wall Street Journal.

The individual stocks that make up the index rarely change, but they can and do change based on the parameters of the Index and changes in the companies represented.

To be included, a company must be a leader in its industry, publically traded and held by both individual and institutional investors.

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CUSIP-numbersCUSIP® numbers are assigned to individual securities for identification purposes.

CUSIP® numbers identify individual financial instruments and each number is unique to a particular security, bond or derivative.

The number identifies the country of issue, the issuer of the security and helps to insure that securities and bonds are transferred correctly between owners.

CUSIP® numbers are overseen by the Committee on Uniform Security Identification Procedures.

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Category: Investments

Bonds Word Means Financial Obligation And ArrearsIt is a type of debt.

Bonds are securities issued by corporations or government entities that pay an interest rate for a specified period of time.

At the end of the time period (known as the term), the principal is paid back in full (assuming the funds are available.)

Most publicly traded bonds are assigned credit quality ratings by one of the private rating agencies.

Each agency has its own system, but there are two basic categories: Investment Grade and Non-Investment grade.

Moody’s, Fitch & Standard & Poor’s are three well known rating agencies.

Investment grade bonds have higher agency ratings. Non-investment grade bonds are commonly known as “junk” or “high-yield” bonds.

These agency ratings show the relative strength of the bond issuer, which is helpful in determining if you are likely to get your money back at the end of the term and the interest paid on time.

Bond interest is usually paid semi-annually, although each bond issue’s terms are specific. Generally, the higher the risk of default or the longer the term of the bond, the higher the interest rate paid.

Depending on the issuer, bond interest may be taxable or tax-exempt (certain types of government bonds.)

There are different kinds of bonds, including:

  • investment grade bonds
  • non investment grade bonds
  • high yield bonds
  • municipal bonds.
  • government bonds

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Category: Investments

Time-Value-of-Money-TVMThis concept spotlights the impact of time on the relative value of money.

The idea is that money available to use today is worth more than the same amount of money available to use at a future date.

The Time Value of Money (TVM) financial calculation is rooted in the idea that money has earning power. So if you have $10 today & invest it to receive interest, that $10 will earn additional money.

If you don’t have the $10 until next year, you will have lost that interest earnings so that future $10 is effectively worth less even though the nominal value is the same.

TVM is important and at the heart of many investment and financial planning calculations, but is often misunderstood or underestimated outside of financial circles.

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Category: Investments

Prime RateThe Prime Rate is the lowest short term interest rate that commercial banks charge to their best and most credit worthy customers.

Some adjustable rate loans are tied to the prime rate. This type of loan is usually referred to as Prime Plus and the rate moves up or down based on changes in the prime rate.

A very good customer may pay the prime rate, while a less creditworthy customer will pay a rate pegged to the prime rate with an additional percentage added on.

In the latter case, the loan rate is calculated by taking the Prime Rate and adding an agreed upon percentage. For example, if the Prime Rate is 3.5%, a rate of Prime + 2% would be a loan rate of 5.5%.

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