Stock Preacher

The US Federal Reserved Wednesday decided to leave a Key interest rate at a record low in an effort to foster economy recovery world wide. Wrapping a two-day meeting, the Federal Open Market Committee (FOMC) said in a statement that it will maintain the target range for the federal funds rate at 0 to 0.25%, indicating that it will leave the benchmark interest rate at exceptional low levels “for an extended period” of time. The committee expressed concerns that while household spending seems to be stabilizing, it remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Read more

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Margin Accounts

A margin account give you the ability to borrow money against the securities in the account to buy more stock. Because you have the ability to borrow in margin account, you have to be qualified an approved by the broker. After you are approved, this newfound credit gives you more leverage so that you can buy more stock or do short selling.

For penny stock trading, the margin limit is 50 percent. For example, If you plan to buy $10000 worth stock on margin, you need at leaset $5000 in cash sitting in your account. The interest rate that you pay varies depending on the broker, but most broker generallly charge a rate that several points higher than their own borrowing rate.

Why use margin? Margin is to stock what mortgage is to buying real estate. You can buy real estate with all cash, but many times, using borrowed funds makes sense since you may not have enough money to make a 100% cash purchase or you prefer not to pay all cash. With margin, you could for example be able to buy $10000 worth stock with as little as $5000. The balance of the stock purchase is acquired using a loan (margin) from the brokerage firm.

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Liablities

Liabilities are simply the bills that you’re obligated to pay. Whether it’s a credit card bill or mortgage payment, a liability is an amount of money you have to pay back eventually. If you don’t keep track of your liabilities, you may end up thinking that you have more money than you really do.

Here are the lists of some common liabilities. Use it as a model, when you list your own. You should list your liablities according to how soon you need to pay tem. Credit card balances tend to be short-term obligations, while mortgages are long-term.

The first column in the table show the type of debt. Don’t forget to include student loans and auto loans if you have any of these. Never avoid listing a liability because you are embarrassed to see how much you really owe. Be honest with yourself. Doing this helps you improve your financial health.

The second column shows the current value of your liabilities. List the most current balance to see where you stand with your creditors.

The third column reflects how much interest you are paying for carrying that debt. This information is an important reminder about how debt can be wealth zapper. Credit card debt can have an interest rate of 18 percent or more and to add insult to injury, it isn’t even tax deductible. Using a credit card to make even a small purchase cost you if you maintain a balance. Within a year, a $50 sweater at 18 percent costs $59 when you add in the potential interest you pay.

If you compare your liabilities in the table and your personal assets on the table on the last article, you may find opportunities to reduce the amount you pay for interest. Say for example, that you pay 15 percent on credit card balance of $4000 but also have a personal assets of $5000 in a bank saving account that’s earning 2 percent in interest. In that case, you may want to consider taking $4000 out of the saving account to pay off the credit card balance. Doing so saves you $520; the $4000 in the bank was earning only $80 (2% of $4000) while you were paying $600 on credit card balance (15% of $4000)

If you can’t pay off high-interest debt, at least look for ways to minimize the cost of carrying the debt. The most obvious ways include the following:

Replacing high interest cards with low interest cards, Many companies offer incentives to consumers including signing up for cards with favorable rates that can used to pay off high-interest cards.

Replacing unsecured debt with secured debt. Credit card and personal loan are unsecured; therefore they have higher interest rates because this type of debt is considered riskier for the creditor. Sources of secured debt provide you with a means to replace your high-invest debt with lower interest debt. You get lower interest rates with secured debt because it’s less risky for the creditor.

The year 2004 was the eighth consecutive year that personal bankruptcies surpassed the million mark in United Sates. Corporate bankruptcies were also at record levels. Make a diligent effort to control and reduce your debt, or the debt can become too burdensome. If you don’t, you may have to sell your stocks just to stay liquid. Remember, Murphy’s Law states that you will sell your stock at the worst possible moment! Don’t’ go there.

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