Panic selling is the rapid selling of stocks or bonds in high volume in anticipation of sharply falling prices – usually after unexpected news is announced.
Archive for the ‘Level 1’ Category
Panic Selling is…
Friday, July 17th, 2009A Security is…
Friday, July 17th, 2009A security is an instrument that shows your ownership in a firm or with federal, state, or local government either through stocks, bonds, or other types of investments.
Can a bad stock be a good stock?
Friday, July 17th, 2009One of the most basic principles of investing is that you want to buy stocks you think will achieve significant growth – you pay a certain price for them now in the hope that they will soon be worth much more. When you end up with stocks that aren’t increasing in value, you usually sell them. But is it ever worth it to hang onto a stock that isn’t growing rapidly?
An alternate way to profit from your stocks involves earning dividends, or payments a corporation makes to its shareholders out of the company’s quarterly earnings. Companies don’t have to pay dividends, so those that choose to do so are trying to attract shareholders. These companies’ growth rates have usually leveled off, and they don’t think they’ll benefit from trying to increase their growth any further, so they have to provide their investors with something else of value. As long as the company is stable – that is, as long as it’s not rapidly decreasing in value – you can still earn money from dividends, even if your stock isn’t growing as quickly as you’d like. So there are times when a stock that’s considered bad by conventional standards can actually turn you a profit through less conventional means.
What’s the idea behind taxing the rich more versus less?
Friday, July 17th, 2009It might seem fair to make everyone pay the same percentage of their income in taxes. That way, the rich pay more money than the poor do, but everyone keeps the same fraction of their money to use however they wish. Then why does the government make you pay a higher percentage the more money you make? Don’t the rich contribute enough as it is?
In the U.S., we have what’s called a progressive income tax, which means you get taxed at a higher rate the more money you have available for taxation. The reason we have a progressive income tax, even though a proportional tax (where everyone gets taxed at the same percentage) might seem fairer, is because a progressive tax reduces the tax incidence of people with lower ability-to-pay.
What does this mean? Tax incidence “falls” on the group that ends up bearing the brunt of taxation. Usually, tax incidence falls on those with less money (the amount they have to pay in taxes more drastically affects their standard of living). You could take away half of Bill Gates’ or Warren Buffet’s money, and they’d still be amazingly rich, but if you took away half the income of the average worker, his ability to live comfortably – even just to pay all his bills – would be seriously affected. Our economy has made some people incredibly well-off, so we ask them to give more back because they can more easily afford to part with it.
A Takeover is…
Wednesday, July 15th, 2009A takeover is generally the act of assuming control of something, but in business it refers to the purchase of one company by another. For example, if Corporation A takes over Corporation B, then Corporation B is now owned and controlled by Corporation A. A takeover can be done by purchasing stock or exchanging stock; it can also be hostile or friendly.
A Donor is…
Monday, July 13th, 2009A donor is someone who gives to charity. If you give money to your favorite nonprofit, then presto – you’re a donor!
Why can’t you cash in your trust fund as soon as you get it?
Wednesday, July 8th, 2009The ways in which trusts can be controlled vary widely. Some trusts have an age restriction (for example, you might not get access until you turn 21, or maybe you get half of it at 25 and the other half at 30); others allow you only a set monthly income out of the trust; there are also those that require you to reach a milestone in your life (say marriage or children). In addition, the person or people who set up the trust appoint trustees – people whose job it is to make sure the trust is used according to their wishes. Many trustees have legal permission to deny money to the beneficiary (the person the trust is for) if they have reason to believe he or she will use it inappropriately. All these restrictions can be quite a pain, but when you consider that a trust is basically a gift, the trust’s creator naturally has some say in how that money is used.
What does the government do with all this tax money?
Tuesday, July 7th, 2009If you’ve ever received a paycheck, you’ve probably noticed that a big chunk of your earnings go to Uncle Sam. The government collects trillions of dollars in taxes every year. There are different types of taxes, such as income tax and property tax, but all funds collected are ultimately spent by the government.
In 2004, the federal budget was approximately $2 trillion. Here is a breakdown of how that money was spent:
- 26.2%—Military
- 22.6%—Interest on the national debt
- 19%—Health care
- 5.5%—Income security
- 3.4%—Veterans’ benefits
- 3.3%—Education
- 2.5%—Nutrition
- 1.6%—Housing
- 1.6%—Environment
- 11.4%—Everything else
You can get much more detailed information by visiting government agency websites like the Congressional Budget Office.
Corporate Restructuring is…
Tuesday, July 7th, 2009Corporate restructuring is when a company reorganizes or redesigns key parts of itself to become more profitable, increase competitiveness, and/or to adapt to a changing economy. A company would restructure its organizational or capital structure when its old way of doing business isn’t working anymore – restructure or bust!
A Financial Instrument is…
Tuesday, July 7th, 2009A financial instrument is a general term for any financial asset that can be bought and traded. Stocks, bonds, treasury notes, options, derivatives, and equity shares are all forms of financial instruments.