Calculate Money Market Interest

What Are Money Market Funds?

What Are Money Market Funds?

Ever wondered what money market funds are and how they can help you make the most out of your money?

Well, money market funds are fixed, short term investments in low risk holdings or securities. By law money market funds must invest in low risk mutual funds making them a good way for existing investors to diversify their interests or for newcomers to launch themselves into the marketplace.

Choosing a Money Market Fund
Money market funds can generate returns in a relatively short time span in accordance with interest rates, and can be redeemed at any time, which is why they are an ideal low risk option for people wanting to preserve their money in a volatile market.

These money market funds are essentially part of a mutual fund which invests in such things as government securities and low risk stocks and bonds. However, because money market funds are part of mutual funds they are not secured investments and are therefore not insured to cover losses.

Losses in the money market are rare as money market shares are able to consistently maintain a net asset value of .00 per share. The net asset value of a share is usually determined at the end of a trading day and it is only when investments perform very poorly that the value will drop below .00.

Investing In Money Market Funds
Some money market mutual funds can offer tax exemptions by investing in short term debts. However, before investing make sure you work out your final tax obligations.

In order to find the best mutual funds you need to consider how the investment can work for you. For example, money market funds all have a ranking in the marketplace so be sure to do your research and find out where they sit.

The next step is to work out how much money you have to invest as this will determine the best mutual funds to help you establish the portfolio you are after. There are money market directories that can be used to compare different funds and calculate expected risks.

You also need to be aware of the rates and charges that come with money market funds. Although these will differ between funds, most incur an initial sales fee, ongoing management fees and transaction fees. To be competitive money market funds will offer different packages for different classes of investors. Some packages may include a flat rate advisory fee while others will incur a fee that decreases as your portfolio value increases. Fees can also be allocated according to the value of a group of funds instead of a single fund.

Finding the Best Mutual Fund
Money market funds require compulsory professional management, undertaken by third party mutual fund managers. This means control of your fund is put into the hands of your fund manager, another reason to ensure you are choosing the right money market fund.

Mutual fund managers research different investment options and have the power to buy, sell and trade your funds on the market. A skilled fund manager will have the ability to forecast the financial viability of a certain asset or investment and make adjustments in accordance with the fund’s set financial principals.

Another major role of mutual fund managers is to predict the financial situation of the fund itself. This means managers need to calculate how much money will be entering and exiting the fund through investors in order to plan for future investments.

Like any investments, money market funds can have both positive and negative returns, but at all costs are the most low risk way of investing your money into the marketplace.

Related Calculate Money Market Interest Articles

Stock Market

Stock Market

Contents
1. Market place
2. Trading on the stock exchange floor
3. Securities. Categories of common stock
3.1 Growth stocks
3.2 Cyclical stocks
3.3 Special situations
4. Preferred stocks
4.1 Bonds-corporate
4.2 Bonds-U.S. government
4.3 Bonds-municipal
4.4 Convertible securities
4.5 Option
4.6 Rights
4.7 Warrants
4.8 Commodities and financial futures
5. Stock market averages reading the newspaper quotations
5.1 The price-earnings ratio
6. European stock markets–general trend
6.1 New ways for old
6.2 Europe, meet electronics
7. New issues
8. Mutual funds. A different approach
8.1 Advantages of mutual funds
8.2 Load vs. No-load
8.3 Common stock funds
8.4 Other types of mutual funds
8.5 The daily mutual fund prices
8.6 Choosing a mutual fund

1. MARKET PLACE

The stock market. To some it’s a puzzle. To others it’s a source of profit and endless fascination. The stock market is the financial nerve center of any country. It reflects any change in the economy. It is sensitive to interest rates, inflation and political events. In a very real sense, it has its fingers on the pulse of the entire world.
Taken in its broadest sense, the stock market is also a control center. It is the market place where busi-nesses and governments come to raise money so that they can continue and expend their operations. It is the market place where giant businesses and institutions come to make and change their financial commitments. The stock market is also a place of individual opportunity.
The phrase “the stock market” means many things. In the narrowest sense, a stock market is a place where stocks are traded – that is bought and sold. The phrase “the stock market” is often used to refer to the biggest and most important stock market in the world, the New York Stock Exchange, which is as well the oldest in the US. It was founded in 1792. NYSE is located at 11 Wall Street in New York City. It is also known as the Big Board and the Exchange. In the mid-1980s NYSE-listed shares made up approximately 60% of the total shares traded on organized national exchanges in the United States.
AMEX stands for the American Stock Exchange. It has the second biggest volume of trading in the US. Located at 86 Trinity Place in downtown Manhattan, the AMEX was known until 1921 as the Curb Exchange, and it is still referred to as the Curb today. Early traders gathered near Wall Street. Nothing could stop those outdoor brokers. Even in the snow and rain they put up lists of stocks for sale. The gathering place became known as the outdoor curb market, hence the name the Curb. In 1921 the Curb finally moved indoors. For the most part, the stocks and bonds traded on the AMEX are those of small to medium-size companies, as con-trasted with the huge companies whose shares are traded on the New York Stock Exchange.
The Exchange is non-for-profit corporation run by a board of directors. Its member firm are subject to a strict and detailed self-regulatory code. Self-regulation is a matter of self-interest for stock exchange members. It has built public confidence in the Exchange. It also required by law. The US Securities and Exchange Commission (SEC) administers the federal securities laws and supervises all securities exchange in the coun-try. Whenever self-regulation doesn’t do the job, the SEC is likely to step in directly. The Exchange doesn’t buy, sell or own any securities nor does it set stock prices. The Exchange merely is the market place where the public, acting through member brokers, can buy and sell at prices set by supply and demand.
It costs money it become an Exchange member. There are about 650 memberships or “seats” on the NYSE, owned by large and small firms and in some cases by individuals. These seats can be bought and sold; in 1986 the price of a seat averaged around 0,000. Before you are permitted to buy a seat you must pass a test that strictly scrutinizes your knowledge of the securities industry as well as a check of experience and character.
Apart from the NYSE and the AMEX there are also “regional” exchange in the US, of which the best known are the Pacific, Midwest, Boston and Philadelphia exchange.
There is one more market place in which the volume of common stock trading begins to approach that of the NYSE. It is trading of common stock “over-the-counter” or “OTC”–that is not on any organized ex-change. Most securities other than common stocks are traded over-the-counter. For example, the vast market in US Government securities is an over-the-counter market. So is the money market–the market in which all sorts of short-term debt obligations are traded daily in tremendous quantities. Like-wise the market for long-and short-term borrowing by state and local governments. And the bulk of trading in corporate bonds also is accomplished over-the-counter.
While most of the common stocks traded over-the-counter are those of smaller companies, many sizable corporations continue to be found on the “OTC” list, including a large number of banks and insurance compa-nies.
As there is no physical trading floor, over-the-counter trading is accomplished through vast telephone and other electronic networks that link traders as closely as if they were seated in the same room. With the help of computers, price quotations from dealers in Seattle, San Diego, Atlanta and Philadelphia can be flashed on a single screen. Dedicated telephone lines link the more active traders. Confirmations are delivered electronically rather than through the mail. Dealers thousands of miles apart who are complete strangers exe-cute trades in the thousands or even millions of dollars based on thirty seconds of telephone conversation and the knowledge that each is a securities dealer registered with the National Association of Securities Dealers (NASD), the industry self-regulatory organization that supervises OTC trading. No matter which way market prices move subsequently, each knows that the trade will be honoured.
2. TRADING ON THE STOCK EXCHANGE FLOOR
When an individual wants to place an order to buy or sell shares, he contacts a brokerage firm that is a member of the Exchange. A registered representative or “RR” will take his order. He or she is a trained pro-fessional who has passed an examination on many matters including Exchange rules and producers.
The individual’s order is relayed to a telephone clerk on the floor of the Exchange and by the telephone clerk to the floor broker. The floor broker who actually executes the order on the trading floor has an exhaust-ing and high-pressure job. The trading floor is a larger than half the size of football field. It is dotted with mul-tiple locations called “trading posts”. The floor broker proceeds to the post where this or that particular stock is traded and finds out which other brokers have orders from clients to buy or sell the stock, and at what prices. If the order the individual placed is a “market order”–which means an order to buy or sell without delay at the best price available–the broker size up the market, decides whether to bargain for a better price or to accept one of the orders being shown, and executes the trade–all this happens in a matter of seconds. Usually shares are traded in round lots on securities exchanges. A round lot is generally 100 shares, called a unit of trading, anything less is called an odd lot.
When you first see the trading floor, you might assume all brokers are the same, but they aren’t. There are five categories of market professionals active on the trading floor.
Commission Brokers, usually floor brokers, work for member firms. They use their experience, judg-ment and execution skill to buy and sell for the firm’s customer for a commission.
Independent Floor Brokers are individual entrepreneurs who act for a variety of clients. They execute orders for other floor brokers who have more volume than they can handle, or for firms whose exchange members are not on the floor.
Registered Competitive Market Makers have specific obligations to trade for their own or their firm’s accounts–when called upon by an Exchange official–by making a bid or offer that will narrow the existing quote spread or improve the depth of an existing quote.
Competitive Traders trade for their own accounts, under strict rules designed to assure that their activi-ties contribute to market liquidity.

And last, but not least, come Stock Specialists. The Exchange tries to preserve price continuity– which means that if a stock has been trading at, say, 35, the next buyer or seller should be able to an order within a fraction of that price. But what if a buyer comes in when no other broker wants to sell close to the last price? Or vice versa for a seller? How is price continuity preserved? At this point enters the Specialist. The specialist is charged with a special function, that of maintaining continuity in the price of specific stocks. The specialist does this by standing ready to buy shares at a price reasonably close to the last recorded sale price when someone wants to sell and there is a lack of buyers, and to sell when there is a lack of sellers and someone wants to buy. For each listed stock, there are one or more specialist firms assigned to perform this stabilizing function. The specialist also acts as a broker, executing public orders for the stock, and keeping a record of limit orders to be executed if the price of the stock reaches a specified level. Some of the specialist firms are large and assigned to many different stocks. The Exchange and the SEC are particularly interested in the spe-cialist function, and trading by the specialists is closely monitored to make sure that they are giving prece-dence to public orders and helping to stabilize the markets, not merely trying to make profits for themselves. Since a specialist may at any time be called on to buy and hold substantial amounts of stock, the specialist firms must be well capitalized.
In today’s markets, where multi-million-dollar trades by institutions (i. e. banks, pension funds, mutual funds, etc.) have become common, the specialist can no longer absorb all of the large blocks of stock offered for sale, nor supply the large blocks being sought by institutional buyers. Over the last several years, there has been a rapid growth in block trading by large brokerage firms and other firms in the securities industry. If an institution wants to sell a large block of stock, these firms will conduct an expert and rapid search for possible buyers; if not enough buying interest is found, the block trading firm will fill the gap by buying shares itself, taking the risk of owning the shares and being able to dispose of them subsequently at a profit. If the institu-tion wants to buy rather than sell, the process is reversed. In a sense, these firms are fulfilling the same func-tion as the specialist, but on a much larger scale. They are stepping in to buy and own stock temporarily when offerings exceed demand, and vice versa.
So the specialists and the block traders perform similar stabilizing functions, though the block traders have no official role and have no motive other than to make a profit.
3. SECURITIES. CATEGORIES OF COMMON STOCK

There is a lot to be said about securities. Security is an instrument that signifies (1) an ownership posi-tion in a corporation (a stock), (2) a creditor relationship with a corporation or governmental body (a bond), or (3) rights to ownership such as those represented by an option, subsription right, and subsription warrant.
People who own stocks and bonds are referred to as investors or, respectively, stockholders (sharehold-ers) and bondholders. In other words a share of stock is a share of a business. When you hold a stock in a cor-poration you are part owner of the corporation. As a proof of ownership you may ask for a certificate with your name and the number of shares you hold. By law, no one under 21 can buy or sell stock. But minors can own stock if kept in trust for them by an adult. A bond represents a promise by the company or government to pay back a loan plus a certain amount of interest over a definite period of time.
We have said that common stocks are shares of ownership in corporations. A corporation is a separate legal entity that is responsible for its own debts and obligations. The individual owners of the corporation are not liable for the corporation’s obligations. This concept, known as limited liability, has made possible the growth of giant corporations. It has allowed millions of stockholders to feel secure in their position as corpo-rate owners. All that they have risked is what they paid for their shares.
A stockholder (owner) of a corporation has certain basic rights in proportion to the number of shares he or she owns. A stockholder has the right to vote for the election of directors, who control the company and ap-point management. If the company makes profits and the directors decide to pay part of these profits to share-holders as dividends, a stockholder has a right to receive his proportionate share. And if the corporation is sold or liquidates, he has a right to his proportionate share of the proceeds.
What type of stocks can be found on stock exchanges? The question can be answered in different ways. One way is by industry groupings. There are companies in every industry, from aerospace to wholesale dis-tributers. The oil and gas companies, telephone com¬panies, computer companies, autocompanies and electric utilities are among the biggest groupings in terms of total earnings and market value. Perhaps a more useful way to distinguish stocks is according to the qualities and values investors want.
3.1 Growth Stocks.
The phrase “growth stock” is widely used as a term to describe what many investors are looking for. People who are willing to take greater-than-average risks often invest in what is often called “high-growth” stocks—stocks of companies that are clearly growing much faster than average and where the stock com-mands a premium price in the market. The rationale is that the company’s earnings will continue to grow rap-idly for at least a few more years to a level that justifies the premium price. An investor should keep in mind that only a small minority of companies really succeed in making earnings grow rapidly and consistently over any long period. The potential rewards are high, but the stocks can drop in price at incredible rates when earn-ings don’t grow as expected. For example, the companies in the video game industry boomed in the early 1980s, when it appeared that the whole world was about to turn into one vast video arcade. But when public interest shifted to personal computers, the companies found themselves stuck with hundreds of millions of dol-lars in video game inventories, and the stock collapsed.
There is less glamour, but also less risk, in what we will call—for lack of a better phrase—”moderate-growth” stocks. Typically, these might be stocks that do not sell at premium, but where it appears that the company’s earnings will grow at a faster-than-average rate for its industry. The trick, of course, is in forecast-ing which companies really will show better-than-average growth; but even if the forecast is wrong, the risk should not be great, assuming that the price was fair to begin with.
There’s a broad category of stocks that has no particular name but that is attractive to many investors, especially those who prefer to stay on the conservative side. These are stocks of companies that are not glam-orous, but that grow in line with the economy. Some examples are food companies, beverage companies, pa-per and packaging manufacturers, retail stores, and many companies in assorted consumer fields.
As long as the economy is healthy and growing, these companies are perfectly reasonable investments; and at certain times when everyone is interested in “glamour” stocks, these “non-glamour” issues may be ne-glected and available at bargain prices. Their growth may not be rapid, but it usually is reasonably consistent. Also, since these companies generally do not need to plow all their earnings back into the business, they tend to pay sizable dividends to their stockholders. In addition to the real growth that these companies achieve, their values should adjust upward over time in line with inflation—a general advantage of common stocks that is worth repeating.
3.2 Cyclical Stocks.
These are stocks of companies that do not show any clear growth trend, but where the stocks fluctuate in line with the business cycle (prosperity and recession) or some other recognizable pattern. Obviously, one can make money if he buys these near the bottom of a price cycle and sells near the top. But the bottoms and tops can be hard to recognize when they occur; and sometimes, when you think that a stock is near the bottom of a cycle, it may instead be in a process of long-term decline.
3.3 Special Situations.
There’s a type of investment that professionals usually refer to as “special situations”. These are cases where some particular corporate development–perhaps a merger, change of control, sale of property, etc.– seems likely to raise the value of a stock. Special situation investments may be less affected by general stock market movements than the average stock investment; but if the expected development doesn’t occur, an in-vestor may suffer a loss, sometimes sizable. Here the investor has to judge the odds of the expected develop-ment’s actually coming to pass.
4. PREFERRED STOCKS
A preferred stock is a stock which bears some resemblances to a bond (see below). A preferred stock-holder is entitled to dividends at a specified rate, and these dividends must be paid before any dividends can be paid on the company’s common stock. In most cases the preferred dividend is cumulative, which means that if it isn’t paid in a given year, it is owed by the company to the preferred stockholder. If the corporation is sold or liquidates, the preferred stockholders have a claim on a certain portion of the assets ahead of the common stockholders. But while a bond is scheduled to be redeemed by the corporation on a certain “maturity” date, a preferred stock is ordinarily a permanent part of the corporation’s capital structure. In exchange for receiving an assured dividend, the preferred stockholder generally does not share in the progress of the company; the preferred stock is only entitled to the fixed dividend and no more (except in a small minority of cases where the preferred stock is “participating” and receives higher dividends on some basis as the company’s earnings grow).
Many preferred stocks are listed for trading on the NYSE and other exchanges, but they are usually not priced very attractively for individual buyers. The reason is that for corporations desiring to invest for fixed income, preferred stocks carry a tax advantage over bonds. As a result, such corporations generally bid the prices of preferred stocks up above the price that would have to be paid for a bond providing the same income. For the individual buyer, a bond may often be a better buy.
4.1 Bonds-Corporate
Unlike a stock, a bond is evidence not of ownership, but of a loan to a company (or to a government, or to some other organization). It is a debt obligation. When you buy a corporate bond, you have bought a portion of a large loan, and your rights are those of a lender. You are entitled to interest payments at a specified rate, and to repayment of the full “face amount” of the bond on a specified date. The fixed interest payments are usually made semiannually. The quality of a corporate bond depends on the financial strength of the issuing corporation.
Bonds are usually issued in units of ,000 or ,000, but bond prices are quoted on the basis of 100 as “par” value. A bond price of 96 means that a bond of ,000 face value is actually selling at 0 And so on.
Many corporate bonds are traded on the NYSE, and newspapers carry a separate daily table showing bond trading. The major trading in corporate bonds, however, takes place in large blocks of 0,000 or more traded off the Exchange by brokers and dealers acting for their own account or for institutions.
4.2 Bonds-U. S. Government
U.S. Treasury bonds (long-term), notes (intermediate-term) and bills (short-term), as well as obligations of the various U. S. government agencies, are traded away from the exchanges in a vast professional market where the basic unit of trading is often $ 1 million face value in amount. However, trades are also done in smaller amounts, and you can buy Treasuries in lots of ,000 or ,000 through a regular broker. U. S. gov-ernment bonds are regarded as providing investors with the ultimate in safety.
4.3 Bonds-Municipal
Bonds issued by state and local governments and governmental units are generally referred to as “mu-nicipals” or “tax-exempts”, since the income from these bonds is largely exempt from federal income tax.
Tax-exempt bonds are attractive to individuals in higher tax brackets and to certain institutions. There are many different issues and the newspapers generally list only a small number of actively traded municipals. The trading takes place in a vast, specialized over-the-counter market. As an offset to the tax advantage, inter-est rates on these bonds are generally lower than on U. S. government or corporate bonds. Quality is usually high, but there are variations according to the financial soundness of the various states and communities.
4.4 Convertible Securities
A convertible bond (or convertible debenture) is a corporate bond that can be converted into the com-pany’s common stock under certain terms. Convertible preferred stock carries a similar “conversion privilege”. These securities are intended to combine the reduced risk of a bond or preferred stock with the advantage of conversion to common stock if the company is successful. The market price of a convertible security generally represents a combination of a pure bond price (or a pure preferred stock price) plus a premium for the conver-sion privilege. Many convertible issues are listed on the NYSE and other exchanges, and many others are traded over-the-counter
4.5 Options
An option is a piece of paper that gives you the right to buy or sell a given security at a specified price for a specified period of time. A “call” is an option to buy, a “put” is an option to sell. In simplest form, these have become an extremely popular way to speculate on the expectation that the price of a stock will go up or down. In recent years a new type of option has become extremely popular: options related to the various stock market averages, which let you speculate on the direction of the whole market rather than on individual stocks. Many trading techniques used by expert investors are built around options; some of these techniques are in-tended to reduce risks rather than for speculation.
4.6 Rights
When a corporation wants to sell new securities to raise additional capital, it often gives its stockholders rights to buy the new securities (most often additional shares of stock) at an attractive price. The right is in the nature of an option to buy, with a very short life. The holder can use (“exercise”) the right or can sell it to someone else. When rights are issued, they are usually traded (for the short period until they expire) on the same exchange as the stock or other security to which they apply.

4.7 Warrants
A warrant resembles a right in that it is issued by a company and gives the holder the option of buying the stock (or other security) of the company from the company itself for a specified price. But a warrant has a longer life—often several years, sometimes without limit As with rights, warrants are negotiable (meaning that they can be sold by the owner to someone else), and several warrants are traded on the major exchanges.
4.8 Commodities and Financial Futures
The commodity markets, where foodstuffs and industrial commodities are traded in vast quantities, are outside the scope of this text. But because the commodity markets deal in “futures”—that is, contracts for de-livery of a certain good at a specified future date— they have also become the center of trading for “financial futures”, which, by any logical definition, are not commodities at all.
Financial futures are relatively new, but they have rapidly zoomed in importance and in trading activity. Like options, the futures can be used for protective purposes as well as for speculation. Making the most head-lines have been stock index futures, which permit investors to speculate on the future direction of the stock market averages. Two other types of financial futures are also of great importance: interest rate futures, which are based primarily on the prices of U.S. Treasury bonds, notes, and bills, and which fluctuate according to the level of interest rates; and foreign currency futures, which are based on the exchange rates between foreign currencies and the U.S. dollar. Although, futures can be used for protective purposes, they are generally a highly speculative area intended for professionals and other expert inve¬stors.
5. STOCK MARKET AVERAGES READING THE NEWSPAPER QUOTATIONS

The financial pages of the newspaper are mystery to many people. But dramatic movements in the stock market often make the front page. In newspaper headlines, TV news summaries, and elsewhere, almost every-one has been exposed to the stock market averages.
In a brokerage firm office, it’s common to hear the question “How’s the market?” and answer, “Up five dollars”, or “Down a dollar”. With 1500 common stocks listed on the NYSE, there has to be some easy way to express the price trend of the day. Market averages are a way of summarizing that information.
Despite all competition, the popularity crown still does to an average that has some of the qualities of an antique–the Dow Jones Industrial Average, an average of 30 prominent stocks dating back to the 1890s. This average is named for Charles Dow–one of the earliest stock market theorists, and a founder of Dow Jones & Company, a leading financial news service and publisher of the Wall Street Journal.
In the days before computers, an average of 30 stocks was perhaps as much as anyone could calculate on a practical basis at intervals throughout the day. Now, the Standard & Poor’s 500 Stock Index (500 leading stocks) and the New York Stock Exchange Composite Index (all stocks on the NYSE) provide a much more accurate picture of the total market. The professionals are likely to focus their attention on these “broad” mar-ket indexes. But old habits die slowly, and someone calls out, “How’s the market?” and someone else answers, “Up five dollars,” or “Up five”–it’s still the Dow Jones Industrial Average (the “Dow” for short) that they’re talking about.
The importance of daily changes in the averages will be clear if you view them in percentage terms. When the market is not changing rapidly, the normal daily change is less than ½ of 1%. A change of ½% is still moderate; 1% is large but not extraordinary; 2% is dramatic. From the market averages, it’s a short step to the thousands of detailed listings of stock prices and related data that you’ll find in the daily newspaper finan-cial tables. These tables include complete reports on the previous day’s trading on the NYSE and other leading exchanges. They can also give you a surprising amount of extra information.
Some newspapers provide more extensive tables, some less. Since the Wall Street Journal is available world wide, we’ll use it as a source of convenient examples. You’ll find a prominent page headed “New York Stock Exchange Composite Transactions”. This table covers the day’s trading for all stocks listed on the NYSE. “Composite” means that it also includes trades in those same stocks on certain other exchanges (Pa-cific, Midwest, etc.) where the stocks are “dually listed”. Here are some sample entries:
52 Weeks Yld P-E Sales Net
High Low Stock Div % Ratio 100s High Low Close Chg.
52 7/8 37 5/8 Cons Ed 2.68 5.4 12 909 49 3/8 48 7/8 49 1/4 +1/4
91 1/8 66 1/2 Gen El 2.52 2.8 17 11924 91 3/8 89 5/8 90 -1
41 3/8 26 1/4 Mobil 2.20 5.4 10 15713 41 40 1/2 40 7/8 +5/8
Some of the abbreviated company names in the listings can be a considerable puzzle, but you will get used to them.
While some of the columns contain longer-term information about the stocks and the companies, we’ll look first at the columns that actually report on the day’s trading. Near the center of the table you will see a column headed “Sales 100s”. Stock trading generally takes place in units of 100 shares and is tabulated that way; the figures mean, for example, that 90,900 shares of Consolidated Edison, 1,192,400 shares of General Electric, and 1,571,300 shares of Mobil traded on January 8. (Mobil actually was the 12th “most active” stock on the NYSE that day, meaning that it ranked 12th in number of shares traded.)
The next three columns show the highest price for the day, the lowest, and the last or “closing” price. The “Net Chg.” (net change) column to the far right shows how the closing price differed from the previous day’s close—in this case, January 7.
Prices are traditionally calibrated in eighths of a dollar. In case you aren’t familiar with the equivalents, they are:
1/8 =$ .125
1/4=$ .25
3/8 =$ .375
1/2 =$ .50
5/8 =$ .625
3/4=$ .75
7/8 =$ .875
Con Edison traded on January 8 at a high of .375 per share and a low of 875, it closed at .25, which was a gain of .25 from the day before. General Electric closed down .00 per share at 00, but it earned a “u” notation by trading during the day at 375, which was a new high price for the stock during the most recent 52 weeks (a new low price would have been denoted by a “d”).
The two columns to the far left show the high and low prices recorded in the latest 52 weeks, not includ-ing the latest day. (Note that the high for General Electric is shown as 91 1/8, not 91 3/8.) You will note that while neither Con Edison nor Mobil reached a new high on January 8, each was near the top of its “price range” for the latest 52 weeks. (Individual stock price charts, which are published by several financial ser-vices, would show the price history of each stock in detail.)
The other three columns in the table give you information of use in making judgments about stocks as investments. Just to the right of the name, the “Div.” (dividend) column shows the current annual dividend rate on the stock — or, if there’s no clear regular rate, then the actual dividend total for the latest 12 months. The dividend rates shown here are .68 annually for Con Edison, .52 for GE, and .20 for Mobil. (Most com-panies that pay regular dividends pay them quarterly: it’s actually .67 quarterly for Con Edison, etc.) The “Yid.” (Yield) column relates tie annual dividend to the latest stock price. In the case of Con Edison, for ex-ample, .68 (annual dividend)/.25 (stock price) ==5.4%, which represents the current yield on the stock.
5.1 The Price-Earnings Ratio
Finally, we have the “P-E ratio”, or price-earnings ratio, which represents a key figure in judging the value of a stock. The price-earnings ratio—also referred to as the “price-earnings multiple”, or sometimes simply as the “multiple”—is the ratio of the price of a stock to the earnings per share behind the stock.
This concept is important. In simplest terms (and without taking possible complicating factors into ac-count), “earnings per share” of a company are calculated by taking the company’s net profits for the year, and dividing by the number of shares outstanding. The result is, in a very real sense, what each share earned in the business for the year — not to be confused with the dividends that the company may or may not have paid out. The board of directors of the company may decide to plow the earnings back into the business, or to pay them out to shareholders as dividends, or (more likely) a combination of both; but in any case, it is the earnings that are usually considered as the key measure of the company’s success and the value of the stock.
The price-earnings ratio tells you a great deal about how investors view a stock. Investors will bid a stock price up to a higher multiple if a company’s earnings are expected to grow rapidly in the future. The multiple may look too high in relation to current earnings, but not in relation to expected future earnings. On the other hand, if a company’s future looks uninteresting, and earnings are not expected to grow substantially, the market price will decline to a point where the multiple is low.
Multiples also change with the broad cycles of the stock market, as investors become willing to pay more or less for certain values and potentials. Between 1966 and 1972, a period of enthusiasm and specula-tion, the average multiple was usually 15 or higher. In the late 1970s, when investors were generally cautious and skeptical, the average multiple was below 10. However, note that these figures refer to average multiples–whatever the average multiple is at any given time, the multiples on individual stocks will range above and be-low it.
Now we can return to the table. The P-E ratio for each stock is based on the latest price of the stock and on earnings for the latest reported 12 months. The multiples, as you can see, were 12 for Con Edison, 17 for GE, and 10 for Mobil. In January 1987, the average multiple for all stocks was very roughly around 15. Con Edison is viewed by investors as a relatively good-quality utility company, but one that by the nature if its business cannot grow much more rapidly that the economy as a whole. GE, on the other hand, is generally given a premium rating as a company that is expected to outpace the economy.
You can’t buy a stock on the P-E ratio alone, but the ratio tells you much that is useful. For stocks where no P-E ratio is shown, it often means that the company showed a loss for the latest 12 months, and that no P-E ratio can be calculated. Somewhere near the main NYSE table, you’ll find a few small tables that also relate to the day’s NYSE-Composite trading. There’s the table showing the 15 stocks that traded the greatest number of shares for the day (the “most active” list), a table of the stocks that showed the greatest percentage of gains or declines (low-priced stocks generally predominate here); and one showing stocks that made new price highs or lows relative to the latest 52 weeks.
You’ll find a large table of “American Stock Exchange Composite Transactions”, which does for stocks listed on the AMEX just what the NYSE-Composite table does for NYSE-listed stocks. There are smaller ta-bles covering the Pacific Stock Exchange, Boston Exchange, and other regional exchanges.
The tables showing over-the-counter stock trading are generally divided into two or three sections. For the major over-the-counter stocks covered by the NASDAQ quotation and reporting system, actual sales for the day are reported and tabulated just as for stocks on the NYSE and AMEX. For less active over-the-counter stocks, the paper lists only “bid” and “asked” prices, as reported by dealers to the NASD.
It is worth becoming familiar with the daily table of prices of U.S. Treasury and agency securities. The Treasury issues are shown not only in terms of price, but in terms of the yield represented by the current price. This is the simplest way to get a bird’s-eye view of the current interest rate situation—you can see at a glance the current rates on long-term Treasury bonds, intermediate-term notes, and short-term bills.
Elsewhere in the paper you will also find a large table showing prices of corporate bonds traded on the NYSE, and a small table of selected tax-exempt bonds (traded OTC). But unless you have a spe¬cific interest in any of these issues, the table of Treasury prices is the best way to follow the bond market.
There are other tables listed. These are generally for more experi¬enced investors and those interested in taking higher risks. For example, there are tables showing the trading on several different exchanges in listed options—primarily options to buy or sell common stocks (call options and put options). There are futures prices— commodity futures and also interest rate futures, foreign currency futures, and stock index futures. There are also options relating to interest rates and options relating to the stock index futures.
6. EUROPEAN STOCKMARKETS–GENERAL TREND
Competition among Europe’s securities exchanges is fierce. Yet most investors and companies would prefer fewer, bigger markets. If the exchanges do not get together to provide them, electronic usurpers will.
How many stock exchanges does a Europe with a single capital market need? Nobody knows. But a part-answer is clear: fewer than it has today. America has eight stock exchanges, and seven futures and options exchanges. Of these only the New York Stock Exchange, the American Stock Exchange, NASDAQ (the over-the-counter market), and the two Chicago futures exchanges have substantial turnover and nationwide preten-sions.
The 12 member countries of the European Community (EC), in contrast, boast 32 stock exchanges and 23 futures and options exchanges. Of these, the market in London, Frankfurt, Paris, Amsterdam, Milan and Madrid–at least–aspire to significant roles on the European and world stages. And the number of exchanges is growing. Recent arrivals include exchanges in Italy and Spain. In eastern Germany, Leipzig wants to reopen the stock exchange that was closed in 1945.
Admittedly, the EC is not as integrated as the United States. Most intermediaries, investors and compa-nies are still national rather than pan-European in character. So is the job of regulating securities markets; there is no European equivalent of America’s Securities and Exchange Commission (SEC). Taxes, company law and accounting practices vary widely. Several regulatory barriers to cross-border investment, for instance by pension funds, remain in place. Recent turmoil in Europe’s exchange rate mechanics has reminded cross0border investors about currency risk. Despite the Maastricht treaty, talk of a common currency is little more than that
Yet the local loyalties that sustain so many European exchanges look increasingly out-of-date. Coun-tries that once had regional stock exchanges have seen them merged into one. A single European market for financial services is on its way. The EC’s investment services directive, which should come into force in 1996, will permit cross-border stockbroking without the need to set up local subsidiaries. Jean-Francois Theodore, chairman of the Paris Bourse, says this will lead to another European Big Bang. And finance is the multina-tional business par excellence: electronics and the end of most capital controls mean that securities traders roam not just Europe but the globe in search of the best returns.
This affects more than just stock exchanges. Investors want financial market that are cheap, accessible and of high liquidity (the ability to buy or sell shares without moving the price). Businesses, large and small, need a capital market in which they can raise finance at the lowest possible cost If European exchanges do not meet these requirements, Europe’s economy suffers.
In the past few years the favoured way of shaking up bourses has been competition. The event that trig-gered this was London’s Big Bang in October 1986, which opened its stock exchange to banks and foreigners, and introduced a screen-plus-telephone system of securities trading known as SEAQ. Within weeks the trading floor had been abandoned. At the time, other European bourses saw Big Bang as a British eccentricity. Their markets matched buy and sell orders (order-driven trading), whereas London is a market in which dealers quote firm prices for trades (quote-driven trading). Yet many continental markets soon found themselves forced to copy London’s example.
That was because Big Bang had strengthened London’s grip on international equity-trading. SEAQ’s in-ternational arm quickly grab¬bed chunks of European business. Today the London exchange reckons to handle around 95% of all European cross-border share-trading It claims to handle three-quarters of the trading in blue-chip shares based in Holland, half of those in France and Italy and a quarter of those in Germany—though, as will become clear, there is some dispute about these figures.
London’s market-making tradition and the presence of many international fund managers helped it to win this business. So did three other factors. One was stamp duties on share deals done in their home coun-tries, which SEAQ usually avoided. Another was the shortness of trading hours on continental bourses. The third was the ability of SEAQ, with market-makers quoting two-way prices for business in large amounts, to handle trades in big blocks of stock that can be fed through order-driven markets only when they find counter-parts.
A similar tussle for business has been seen among the ex¬changes that trade futures and options. Here, the market which first trades a given product tends to corner the business in it. The European Options Ex-change (EOE) in Amsterdam was the first derivatives exchange in Europe; today it is the only one to trade a European equity-index option. London’s LIFFE, which opened in 1982 and is now Europe’s biggest deriva-tives exchange, has kept a two-to-one lead in German government-bond futures (its most active contract) over Frankfurt’s DTB, which opened only in 1990. LIFFE competes with several other European exchanges, not always successfully: it lost the market in ecu-bond futures to Paris’s MATIF.
European exchanges armoured themselves for this battle in three ways. The first was to fend off foreign competition with rules. In three years of wrangling over the EC’s investment-services directive, several member-countries pushed for rules that would require securities to be traded only on a recognized exchange. They also demanded rules for the disclosure of trades and prices that would have hamstrung SEAQ’s quote-driven trading system. They were beaten off in the eventual compromise, partly because governments realized they risked driving business outside the EC. But residual attempts to stifle competition remain. Italy passed a law in 1991 requiring trades in Italian shares to be conducted through a firm based in Italy. Under pressure from the European Commission, it may have to repeal it.
6.1 New Ways for Old
The second response to competition has been frantic efforts by bourses to modernize systems, improve services and cut costs. This has meant investing in new trading systems, improving the way deals are settled, and pressing governments to scrap stamp duties. It has also increasingly meant trying to beat London at its own game, for instance by searching for ways of matching London’s prowess in block trading.
Paris, which galvanized itself in 1988, is a good example. Its bourse is now open to outsiders. It has a computerized trading system based on continuous auctions, and settlement of most of its deals is computer-ized. Efforts to set up a block-trading mechanism continue, although slowly. Meanwhile, MATIF, the French futures exchange, has become the continent’s biggest. It is especially proud of its ecu-bond contract, which should grow in importance if and when monetary union looms.
Frankfurt, the continent’s biggest stock-market, has moved more ponderously, partly because Germany’s federal system has kept regional stock exchange in being, and left much of the regulation of its markets at Land (state) level. Since January 1st 1993 all German exchanges (including the DTB) have been grouped un-der a firm called Deutsche Borse AG, chaired by Rolf Breuer, a member of Deutsche Bank’s board. But there is still some way to go in centralizing German share-trading. German floor brokers continue to resist the in-roads made by the bank’s screen-based IBIS trading system. A law to set up a federal securities regulator (and make insider-dealing illegal) still lies becalmed in Bonn.
Other bourses are moving too. Milan is pushing forward with screen-based trading and speeding up its settlement. Spain and Belgium are reforming their stock-markets and launching new futures exchanges. Am-sterdam plans an especially determined attack on SEAQ. It is implementing a McKinsey report that recom-mended a screen-based system for wholesale deals, a special mechanism for big block trades and a bigger market-making role for brokers.
Ironically, London now finds itself a laggard in some respects. Its share settlement remains prehistoric; the computerized project to modernize it has just been scrapped. The SEAQ trading system is falling apart; only recently has the exchange, belatedly, approves plans draw up by Arthur Andersen for a replacement, and there is plenty of skepticism in the City about its ability to deliver. Yet the exchange’s claimed figures for its share of trading in continental equities suggest that London is holding up well against its competition.
Are these figures correct? Not necessarily: deals done through an agent based in London often get counted as SEAQ business even when the counterpart is based elsewhere and the order has been executed through a continental bourse. In today’s electronic age, with many firms members of most European ex-changes, the true location of a deal can be impossible to pin down. Continental bourses claim, anyway, to be winning back business lost to London.
Financiers in London agree that the glory-days of SEAQ’s international arm, when other European ex-changes were moribund, are gone. Dealing in London is now more often a complement to, rather than a substi-tute for, dealing at home. Big blocks of stock may be bought or sold through London, but broken apart or as-sembled through local bourses. Prices tend to be derived from the domestic exchanges; it is notable that trad-ing on SEAQ drops when they are closed. Baron van Ittersum, chairman of the Amsterdam exchange, calls this the “queen’s birthday effect”: trading in Dutch equities in London slows to a trickle on Dutch public holi-days.
Such competition-through-diversity has encourage European exchanges to cut out the red tape that pro-tected their members from outside competition, to embrace electronics, and to adapt themselves to the wishes of investors and issuers. Yet the diversity may also have had a cost in lower liquidity. Investors, especially from outside Europe, are deterred if liquidity remains divided among different exchanges. Companies suffer too: they grumble about the costs of listing on several different markets.
So the third response of Europe’s bourses to their battle has been pan-European co-operative ventures that could anticipate a bigger European market. There are more wishful words here than deeds. Work on two joint EC projects to pool market information, Pipe and Euroquote, was abandoned, thanks mainly to hostility from Frankfurt and London. Eurolist, under which a company meeting the listing requirements for one stock exchange will be entitled to a listing on all, is going forward–but this is hardly a single market. As Paris’s Mr Theodore puts it, “there is a compelling business case for the big European exchanges building the European-regulated market of to-morrow” Sir Andrew Hugh-Smith, chairman of the London ex¬change has also long ad-vocated one European market for profes¬sional investors
One reason little has been done is that bourses have been coping with so many reforms at home. Many wanted to push these through before thinking about Europe. But there is also atavistic nationalism. London, for example, is unwilling to give up the leading role it has acquired in cross-border trading between institu-tions; and other exchanges are unwilling to accept that it keeps it. Mr. Theodore says there is no future for the European bourses if they are forced to row in a boat with one helmsman. Amsterdam’s Baron van Ittersum also emphasises that a joint European market must not be one under London’s control.
Hence the latest, lesser notion gripping Europe’s exchanges: bilateral or multilateral links. The futures exchanges have shown the way. Last year four smaller exchanges led by Amsterdam’s EOE and OM, an op-tions exchange based in Sweden and London, joined together in a federation called FEX In January of this year the continent’s two biggest exchanges, MATIF and the DTB, announced a link-up that was clearly aimed at toppling London’s LIFFE from its dominant position Gerard Pfauwadel, MATIF’s chairman, trumpets the deal as a precedent for other European exchanges. Mr Breuer, the Deutsche Borse’s chairman, reckons that a network of European exchanges is the way forward, though he concedes that London will not warm to the idea. The bourses of France and Germany can be expected to follow the MATIF/DTB lead.
It remains unclear how such link-ups will work, however. The notion is that members of one exchange should be able to trade products listed on another. So a Frenchman wanting to buy German government-bond futures could do so through a dealer on MATIF, even though the contract is actually traded in Frankfurt. That is easy to arrange via screen-based trading: all that are needed are local terminals. But linking an electronic market such as the DTB to a floorbased market with open-outcry trading such as MATIF is harder Nor have any exchanges thought through an efficient way of pooling their settlement systems
In any case, linkages and networks will do nothing to reduce the plethora of European exchanges, or to build a single market for the main European blue-chip stocks. For that a bigger joint effort is needed It would not mean the death of national exchanges, for there will always be business for individual investors, and in se-curities issued locally Mr Breuer observes that ultimately all business is local. Small investors will no doubt go on worrying about currency
risk unless and until monetary union happens. Yet large wholesale investors are already used to hedging against it. For them, investment in big European blue-chip securities would be much simpler on a single wholesale European market, probably subject to a single regulator
More to the point, if investors and issuers want such a market, it will emerge—whether today’s ex-changes provide it or not. What, after all, is an exchange? It is no more than a system to bring together as many buyers and sellers as possible, preferably under an agreed set of rules. That used to mean a physically supervised trading floor. But computers have made it possible to replicate the features of a physical exchange electronically. And they make the dissemination of prices and the job of applying rules to a market easier.
Most users of exchanges do not know or care which exchange they are using: they deal through brokers or dealers. Their concern is to deal with a reputable firm such as S. G. Warburg, Gold-man Sachs or Deutsche Bank, not a reputable exchange. Since big firms are now members of most exchanges, they can choose where to trade and where to resort to off-exchange deals—which is why there is so much dispute over market shares within Europe This fluidity creates much scope for new rivals to undercut established stock exchanges.
6.2 Europe, Meet Electronics
Consider the experience of the New York Stock Exchange, which has remained stalwartly loyal to its trading floor. It has been losing business steadily for two decades, even in its own listed stocks. The winners have included NASDAQ and cheaper regional exchanges. New York’s trading has also migrated to electro¬nic trading systems, such as Jeffries & Co’s Posit, Reuters’s Instinct and Wunsch (a computer grandly renamed the Arizona Stock Exchange).
Something similar may happen in Europe. OM, the Swedish options exchange, has an electronic trading system it calls Click. It recently renamed itself the London Securities and Derivatives Exchange. Its chief ex-ecutive, Lynton Jones, dreams of offering clients side-by-side on a screen a choice of cash products, options and futures, some of them customised to suit particular clients The Chicago futures exchanges, worried like all established exchanges about losing market share, have recently launched “flex” contracts that combine the vir-tues of homogeneous exchange-traded products with tailor-made over-the-counter ones.
American electronic trading systems are trying to break into European markets with similarly imagina-tive products Instinet and Posit are already active, though they have had limited success so far. NASDAQ has an international arm in Europe. And there are homegrown systems, too. Tradepoint, a new electronic order-driver trading system for British equities, is about to open in London. Even bond-dealers could play a part. Their trade association, ISMA, is recognized British exchange for trading in Eurobonds; it has a computerized reporting system known as TRAX; most of its members use the international clearing-houses Euroclear and Cedel for trade settlement. It would not be hard for ISMA to widen its scope to include equities or futures and options. The association has recently announced a link with the Amsterdam Stock Exchange.
Electronics poses a threat to established exchanges that they will never meet by trying to go it alone. A single European securities market (or derivatives market) need not look like an established stock exchange at all. It could be a network of the diverse trading and settlement systems that already exists, with the necessary computer terminals scattered across the EC. It will need to be regulated at the European level to provide uni-form reporting; an audit trail to allow deals to be retraced from seller to buyer; and a way of making sure that investors can reach the market makers offering the best prices. Existing national regulators would prefer to do all this through co-operation; but some financiers already talk of need for a European SEC. An analogy is European civil aviation’s reluctant inching towards a European system of air-traffic control.
Once a Europe-wide market with agreed regulation is in place, competition will window out the winners and losers among the member- bourses, on the basis of services and cost, or of the rival charms of the immedi-acy and size of quote-driven trading set against the keener prices of order-driven trading. Not a cosy prospect; but if the EC’s existing exchanges do not submit to such a European framework, other artists will step in to deny them the adventure.
7. NEW ISSUES

Up to now, we have talked about the function of securities markets as trading markets, where one inves-tor who wants to move out of a particular investment can easily sell to another investor who wishes to buy. We have not talked about another function of the securities markets, which is to raise new capital for corpora-tions–and for the federal government and state and local governments.
When you buy shares of stock on one of the exchanges, you are not buying a “new issue”. In the case of an old established company, the stock may have been issued decades ago, and the company has no direct in-terest in your trade today, except to register the change in ownership on its books. You have taken over the in-vestment from another investor, and you know that when you are ready to sell, another investor will buy it from you at some price.
New issues are different. You have probably noticed the advertisements in the newspaper financial pages for new issues of stocks or bonds–large advertising which, because of the very tight restrictions on ad-vertising new issues, state virtually nothing except the name of the security, the quantity being offered, and the names of the firms which are “underwriting” the security or bringing it to market.
Sometimes there is only a single underwriter; more often, especially if the offering is a large one, many firms participate in the underwriting group. The underwriters plan and manage the offering. They negotiate with the offering company to arrive at a price arrangement which will be high enough to satisfy the company but low enough to bring in buyers. In the case of untested companies, the underwriters may work for a prear-ranged fee. In the case of established companies, the underwriters usually take on a risk function by actually buying the securities from the company at a certain price and reoffering them to the public at a slightly higher price; the difference, which is usually between 1% and 7%, is the underwriters’ profit. Usually the underwrit-ers have very carefully sounded out the demand is disappointing–or if the general market takes a turn for the worse while the offering is under way–the underwriters may be left with securities that can’t be sold at the scheduled offering price. In this case the underwriting “syndicate” is dissolved and the underwriters sell the securities for whatever they can get, occasionally at a substantial loss.
The new issue process is critical for the economy. It’s important that both old and new companies have the ability to raise additional capital to meet expanding business needs. For you, the individual investor, the area may be a dangerous one. If a privately owned company is “going public” for the fist time by offering securities in the public market, it is usually does so at a time when its earnings have been rising and everything looks particularly rosy. The offering also may come at a time when the general market is optimistic and prices are relatively high. Even experienced investors can have great difficulty in assessing the real value of a new offering under these conditions.
Also, it may be hard for your broker to give you impartial advice. If the brokerage firm is in the under-writing group, or in the “selling group” of dealers that supplements the underwriting group, it has a vested in-terest in seeing the securities sold. Also, the commissions are likely to be substantially higher than on an ordi-nary stock. On the other hand, if the stock is a “hot issue” in great demand, it may be sold only through small individual allocations to favored customers (who will benefit if the stock then trades in the open market at a price well above the fixed offering price)
If you are considering buying a new issue, one protective step you can take is to read the prospectus The prospectus is a legal document describing the company and offering the securities to the public. Unless the of-fering is a very small one, it can’t be made without passing through a registration process with the SEC. The SEC can’t vouch for the value of the offering, but it does act to make sure that essential facts about the com-pany and the offering are disclosed in the prospectus.
This requirement of full disclosure was part of the securities laws of the 1930s and has been a great boon to investors and to the securities markets. It works because both the underwriters and the offering com-panies know that if any material information is omitted or misstated in the prospectus, the way is open to law-suits from investors who have bought the securities.
In a typical new offering, the final prospectus isn’t ready until the day the securities are offered. But be-fore that date you can get a “preliminary prospectus” or “red herring”—so na¬med because it carries red letter-ing warning that the prospectus hasn’t yet been cleared by the SEC as meeting disclosure require¬ments
The red herring will not contain the offering price or the final underwriting arrangements But it will give you a description of the company’s business, and financial statements showing just what the company’s growth and profitability have been over the last several years It will also tell you something about the man-agement. If the management group is taking the occasion to sell any large percentage of its stock to the public, be particularly wary.
It is a very different case when an established public company is selling additional stock to raise new capital. Here the company and the stock have track records that you can study, and it’s not so difficult to make an estimate of what might be a reasonable price for the stock The offering price has to be close to the current market price, and the underwriters’ profit margin will generally be smaller But you still need to be careful. While the SEC has strict rules against promoting any new offering, the securities industry often manages to create an aura of enthusiasm about a company when an offering is on the way On the other hand, the knowl-edge that a large offering is coming may depress the market price of a stock, and there are times when the of-fering price turns out to have been a bargain
New bond offerings are a different animal altogether. The bond markets are highly professional, and there is nothing glamorous about a new bond offering. Everyone knows that a new A-rated corporate
bond will be very similar to all the old A-rated bonds. In fact, to sell the new issue effectively, it is usu-ally priced at a slightly higher “effective yield” than the current market for comparable older bonds—either at a slightly higher interest rate, or a slightly lower dollar price, or both. So for a bond buyer, new issues often of-fer a slight price advantage.
What is true of corporate bonds applies also to U.S. government and municipal issues. When the Treas-ury comes to market with a new issue of bonds or notes (a very frequent occurrence), the new issue is priced very close to the market for outstanding (existing) Treasury securities, but the new issue usually carries a slight price concession that makes it a good buy. The same is true of bonds and notes brought to market by state and local governments; if you are a buyer of municipals, these new offerings may provide you with mod-est price concessions. If the quality is what you want, there’s no reason you shouldn’t buy them—even if your broker makes a little extra money on the deal.
8. MUTUAL FUNDS. A DIFFERENT APPROACH

Up until now, we have described the ways in which securities are bought directly, and we have dis-cussed how you can make such investments through a brokerage account.
But a brokerage account is not the only way to invest. For many investors, a brokerage has disadvan-tages–the difficulty of selecting an individual broker, the commission costs (especially on small transactions), and the need to be involved in decisions that many would prefer to leave to professionals. For people who feel this way, there is an excellent alternative available—mutual funds.
It isn’t easy to manage a small investment account effectively. A mutual fund gets around this problem by pooling the money of many investors so that it can be managed efficiently and economically as a single large unit. The best-known type of mutual fund is probably the money market fund, where the pool is invested for complete safety in the shortest-term income-producing investments. Another large group of mutual funds invest in common stocks, and still others invest in long-term bonds, tax-exempt securities, and more special-ized types of investments.
The mutual fund principle has been so successful that the funds now manage over 0 billion of inves-tors’ money—not including over 0 billion in the money market funds.
8.1 Advantages of Mutual Funds
Mutual funds have several advantages. The first is professional management. Decisions as to which se-curities to buy, when to buy and when to sell are made for you by professionals. The size of the pool makes it possible to pay for the highest quality management, and

What To Look For When Choosing The Best Savings Calculator

What To Look For When Choosing The Best Savings Calculator

If you search in Google the phrase ‘savings calculator’, the search engine will come back with over one million results. There are hundreds of savings calculators to choose from on the internet. But how do you make the best choice of which is the right one for you, your family, and your personal finance situation? There are several factors that you should consider when choosing a savings calculator to input your data into so you receive the best advice for your individual circumstances.

The Devil Is In The Details With A Savings Calculator

A savings calculator must have as many details as possible for you to input about your financial life, number of years to be saved, monthly deposits, and projected interest rate earned. Would you want to trust a calculator that says you can accumulate million by retirement if it only asked you two simple questions? You will be much happier with the results and feel more confident about where you stand with your savings if the savings calculator is very detailed in how it examines your financial life and the inputs you make into it.

Savings Calculators Must Take Into Account Inflation And Other Assumptions

The best savings calculator will take into account your savings balance, amount deposited per period, the intervals between your deposits, your annual rate of return, the rate of inflation, and a host of other important factors when it returns critical information to you. You should look for a savings calculator that is designed to help you determine how much you will have available to spend each month in savings and even provide you with options to make up for any shortfalls that it identifies. You might want to consider a savings calculator that takes into account the modern ways of savings with income from multiple savings even in retirement such as continued part time work, small business income, real estate rental income, annuity payments, pensions, and other income sources. There are so many variables to a modern savings plan that is not taken into account by many online savings calculators that are based on the traditional mindset of saving a lump sum or monthly amounts.

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Savings Calculators Are Online As Good As The Information You Put In

Have you ever heard the term ‘garbage in, garbage out’? It applies to most things in life but especially financial planning. Your results of your plan are only as good as the assumptions that you put into the calculators. Do you think that you will work part time in retirement and continue to set money aside in savings accounts? Do you think that you will withdraw 4% of your savings or more in retirement? Make sure that you include these assumptions in your calculations. But, if you want an accurate assessment of where you stand financially or where you need to go to accomplish your financial goals, you will need to make sure that your data is inputted into these calculators as accurately as possible. Your results from the savings calculators are only as good as the information you put in them.

There are savings calculators on the internet that provide a variety of information to the user. It is critical that you find the right calculator for the information you are looking for. Are you trying to find out what percentage of your nest egg to withdraw each month from your savings? Or, are you looking for an answer as to how big your savings account needs to be in order to live comfortably? It is easy to find a savings calculator that can show you how to grow your savings with an online savings account, reach your savings goal with a Money Market account, or see how you can grow your nest egg. But, remember, you will find a more detailed answer to your savings questions if you can find a more detailed savings calculator. Many calculators online barely scratch the surface of analysis. Many are still stuck to the traditional savings models of our parents’ generation that may not be as all inclusive as possible. Diverse and in-depth a savings calculator will result in better estimation of your wealth in the future and better answers to your savings questions.

Is There a Benefit to Open a Money Market Savings Bank Account?

Is There a Benefit to Open a Money Market Savings Bank Account?

For the most part, we the people of the U.S. Are spenders, not savers.  Now that is giving us a bite.  The economic downturn has really given us a ride for the money we are used to spending.  We need to re-focus on savings and one way is with a money market account.

A money market account is almost like a regular savings account, however, there are checks that come with it. Usually, you will receive more interest than that of a traditional savings account.  With a money market savings account, you are restricted to how many withdrawals per month you can make without being penalized.  You also must keep a certain balance.  If the balance falls below that amount, you will be charged a fee.  Be sure to check the details before opening.

Having understood that, there are a number of noteworthy differences concerning a <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://retirementusa.com/financial”> money </a> market account and a ‘regular’ savings account.  As stated earlier, most money markets will require higher balances than traditional savings and can be as much as ,500.  You will earn higher interest. So, you need to have those funds available to stay there for awhile.  Many banks will require a time frame for you to leave open. If you close earlier than agreed (let’s say 6 months) you will incur a penalty.

An additional difference is the smooth of access to your funds.  Usually, traditional <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://retirementusa.com/financial/banking”> savings </a> accounts will allow you more freedom to your money. Many money market accounts only allow 3 withdrawals per month.  The difference is you can write checks from this account.

Remember that the new rules for FDIC have changed and you must be aware of them & how much is insured with each account holder. If you open with a credit union, you will be insured by NCUA.

Prior to you opening your account, be sure you read in the brochure all the details of your money market account.  Look for:

1) What is the interest rate ?

2) How does the bank calculate interest ?

3.  Are there minimum balances to maintain & for how long must you keep account opened ?

4)  How much will you pay to withdraw your money?

Just because our economy is in a turmoil, don’t let it get you into a turmoil as well.  Remember one of the rules in <a rel=”nofollow” onclick=”javascript:_gaq.push(['_trackPageview', '/outgoing/article_exit_link']);” href=”http://retirementusa.com/financial/investments”> finances </a>   is to pay yourself first.  This should be a monthly bill just like all the other monthly bills you have.

How can you benefit from opening a money market account?

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Calculating PIPS in Forex trading Buying and selling

Calculating PIPS in Forex trading Buying and selling

The off-alternate retail foreign foreign money market, also recognized as the “Forex” or “FX” marketplace, is the largest fiscal and investment market place in the planet. But what is it, exactly? Forex trading is the simultaneous acquiring of one particular foreign currency and promoting of yet another. The currencies of the globe are on a floating trade price and are always traded in pairs. For example, common forex investing pairs consist of euro/greenback or dollar/yen. Forex trading buyers utilize various analytical strategies (both elementary and technical) in an attempt to predict price movement. Thus, turning out to be effectively versed in predicting these movements allows traders to revenue from nicely-timed transactions. It is essential to comprehend that buying currencies is a quite risky type of investing, and any funds utilized when speculating on the values of foreign currency rates really should be deemed chance capital.

Creating a revenue on currency buying and selling signifies viewing the fluctuations of PIPS. A “PIP,” which in financing stands for “proportion in stage,” in currency investing is the smallest increment of benefit alter in any forex pair. It is normally the fourth decimal location. In EUR/USD a movement from one.0066 to one.0067 is one PIP, so a PIP is .0001. In USD/JPY a movement from one hundred twenty.45 to one hundred twenty.46 is a single PIP, so a PIP is .01.

The amount of decimal places quoted depends on the broker and the dimension of the transaction–contracts involving large banks or businesses can easily be provided six or far more decimal places. PIP significance is calculated with details this kind of as leverage used, trading dimension, and the actual fee of the pair for which you want to calculate the PIP worth.

When you initial start currency buying, 1 of the most essential items to learn is how to determine out the worth of a PIP for any foreign money pair. Since a PIP is the smallest measure of benefit in a foreign money pair, it’s essential you comprehend this concept if you want to be successful. Luckily, some forex businesses offer you a PIP calculator that does the function for you and prevents error.More info of exchange rate calculator

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Money Management – How to Grab the Cash and Dash

Money Management – How to Grab the Cash and Dash

I trade with a market timer that mirrors the S&P 500.   The SPX is an ETF (Exchange Traded Fund) that tracks the S&P 500.   Consider the chart of the SPX.  The market is in a downtrend.  The timer indicates a down market signal on November 11th 2008. 

At the bottom of the chart, there is a yellow histogram that displays the percentage points gleaned as the trade progresses. It shows the percentage gains of the SPX during a timer signal; the white horizontal lines are at the 5%, 10% and 15% gain levels.

Gains of 5% have been routine over the years; 10% gains occur less frequently and are often accompanied with a pull-back; gains of 15% are rare and usually momentary. This money management plan takes advantage of the stock price excursions. 

The Strategy Described
This “Grab the cash and dash” strategy is straightforward.
a) When the SPX price has moved 5%, close 25% of your shares.
b) When the SPX price has moved 10%, close half your residual shares.
c) When the SPX price has  15%, sell 50% your residual shares.

“Grab the cash and dash” employing Ultra and Contra ETFs
SSO and SDS are Ultra (2X Leveraged) ETFs that are commonly traded to represent the S&P 500. Both  the SSO and SDS are liquid; i.e. they have very high daily volume, and the difference between their bid and ask prices is within a few pennies.  The advantage to the trader is that he can enter and close trades for very small slippage costs. 

The SSO ETF is traded during bull markets; SDS, a Contra (inverse) fund, is traded during falling markets.  SSO and SDS gain approximately twice S&P 500′s gain.  For example, if the S&P 500 rises 5%, then SSO moves up 10%.  If the S&P 500 moves down 5%, then SDS moves UP 10% – yes, up, because it is an inverse fund.  By exploiting these two ETFs, we can capture profits when the market rises or falls; even in your IRA account.

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Now that we have a technique to capture profits in a rising or falling market, let’s look at the effect that applying the “Grab the cash and dash” money management strategy does to our profits in a market that retraces.  This money management plan not only captures profits as they are generated, but, at the same time, it reduces your funds at risk. 

Instead of adding to the trade, increasing risk, we take money away from the trade.  This addresses the increasing risk of a pullback as the market rises. The strategy works best in volatile markets such as those we have been experiencing since the fall of 2007.

An Example
As an example we are going to use the trades represented in the red rectangle in the lower left of the chart. The yellow histogram at the bottom of the chart shows that the market had gains over 15% during this trade.   Because SPX’s price was falling, we traded SDS to take advantage of the bear market.  (SDS rises as the market falls because it is an inverse ETF, remember.)

Table A

Gains without money management
To illustrate the calculations in the table An above, we are going to buy 1,600 shares of SDS FOR .31 on 11/11/2008. This is an investment of 0,896.  If we hold SDS until 11/25/2008 and do not employ any money management strategy, we will experience a small loss of 8.

Gains employing money management
Watch the effect on ETF profits when using this money management strategy.

1.    On 11/12/2008 the SPX has gained over 5%. Therefore, we will sell 400 [25%] of the shares of SDS at 104.94 for a gain of ,252.00; we still have 1,200 shares of SDS.
2.    On 11/19/2008 the SPX has gained over 10%. We want to capture more of the move, so we will sell 600 [50%] of the shares at 112.94 for a gain of ,178.00; we still have 600 shares.
3.    On 11/20/2008 the SPX has gained over 15%. We will sell 300 [50%] of the shares at 127.97 for a gain of ,098.00; we still have 300 shares.
4.    On 11/25/2008 we sell to close the leftover 300 shares. We sell 300 at 94.13 for a loss.

Summing up the gains in steps 1, 2, 3, and 4 above, the profits reach ,474.00 instead of a loss of 8.  This represents a gain of 16.88%.  This gain was made possible by selling shares at prescribed levels to take advantage of the price moves.

It is important for investors to take profits when they present themselves.  The concept of adding to a trade as the trade progresses adds appreciable risk.  Moreover, in these volatile markets, it is essential to have a money management strategy that reduces risk rather than increasing risk.

My web site, SPXTimer.com is dedicated to assisting investors improve their investment performance using the SPXTimer combined with sound money management. We aim to achieve exceptional gains while keeping safety primary.
Many of our strategies have been developed principally for IRAs. These strategies show you how to safely profit in both bull and bear markets. Our market timer is unique because it includes market sentiment when calculating the market direction.