Author: admin

Definition:

An exchange-traded fund a type of investment fund that trades on a stock exchange like a stock. ETFs are typically designed to track the performance of a specific index, such as the S&P 500, NASDAQ, or Dow Jones Industrial Average.

‍

What is an ETF?
‍

While some people want to invest in individual selected companies, others want to invest in multiple companies and securities at the same time. Exchange-traded funds are made for that second group, enabling them to invest in a mix of different stocks and securities. Stock exchange funds are available in several varieties. They can range in investment focus, which can be linked to a particular industry, region, and other specific categories of securities. With some exchange-traded funds, you can invest in an entire sector and track a broader market index rather than having to choose a particular company within it. So you can buy and sell ETFs just like stocks.

‍

EXAMPLE
‍

If you believe cybersecurity is a smart investment but don’t know what kind of cybersecurity company to invest in, you may not have to choose. Instead, a cybersecurity ETF can include stocks of different cybersecurity companies, giving you a broader range of investments in the cybersecurity industry.

‍

Some widely used ETFs include:

• Broad index-based ETFs: These are intended to track popular indices, such as the S&P 500 stock index, which consists of the 500 largest publicly traded U.S. companies based on their value by market capitalization. It offers a certain flavor of the overall U.S. stock market (i.e., large-cap stocks). The up and downs of this ETF are usually closely related to the S&P 500 stock index.
• Sector or niche ETFs: These ETFs may track a narrower portion of the market, either as a speculative “bet” on a particular market segment or as a way to diversify an existing group of securities (e.g., stocks, bonds, etc.). These types of ETFs may represent unique market segments such as commodities (e.g., gold, oil), or they may specialize in a narrower segment of a larger asset class (e.g., small companies, foreign companies or cybersecurity companies). However, these ETF investors are usually exposed to additional political, currency and market risks.

‍

Are ETFs the same as mutual funds?
‍

They both contain the word “fund,” but they are not the same thing. Mutual funds and ETFs can also provide access to a broader range of investments in one mutual fund. Mutual funds also come in two basic types (open-end and closed-end), each of which may have different characteristics. Even though ETFs and mutual funds provide diversification investments, they differ in their structure, benefits and risks.

‍

Here are a couple of differences:

1. ETFs can be traded throughout the day on exchanges like stocks . However, many mutual funds (e.g., open-end mutual funds) are priced only once a day, at the end of the trading day, and can only be settled once that price is determined daily after trading ends.

2. ETFs are often designed to passively track a particular industry, index or package of securities, so management fees can be lower.

‍

Advantages of ETFs
‍

There are many advantages to ETFs over other types of funds, such as mutual funds. Despite these advantages, all ETFs have a risk based on the benchmark investments that they hold (and that you, as an investor, will receive as an ETF owner, for example):

– “Intraday” trading: Like stocks, ETF prices can change throughout the day, and ETFs can be bought and sold during trading hours. For example, an intraday trader may buy an ETF in the morning, sell it in the afternoon and buy it again in the afternoon. An open-end mutual fund, on the other hand, can only be redeemed once a day, after the market closes, at the end-of-day fund price.

– Lower fees: Mutual funds can be actively managed by a fund manager, In this case, they usually charge a higher fee for this service. But since ETFs often passively track the movements of an index or security without active human involvement, they usually don’t charge such a high management fee. Some ETFs are actively managed.

– Diversification: The wide variety of ETFs available can make it easy to diversify your portfolio . Different and increasingly niche ETFs specialize in certain sectors, areas and securities that can help balance out your other investments.

‍

Disadvantages of ETFs
‍

Investing is serious, regardless of the type of investment. In addition to the advantages of ETFs, there are also some disadvantages to keep in mind. And like any investment, ETFs carry risk.

Here are a few key disadvantages to keep in mind:

• Diversity: Although ETFs can help diversify a portfolio, they are not necessarily diverse in and of themselves. Some ETFs provide access to a wide range of stocks in a particular region, sector or theme, but not all. Make sure you know exactly what the ETF you’re investing in includes and whether it will truly diversify your investments, if that’s what you’re aiming for.

• Market volatility: Over the past decade, the growing popularity of ETFs has led to a dramatic increase in funds tracking various indices or industries. As a result, some studies suggest that market volatility may be exacerbated by investments of some algorithm-driven funds.

• Tradability: ETFs may trade throughout the day like stocks, but that doesn’t mean they are always easy to trade. Some ETFs focused on more niche or obscure sectors may have relatively few buyers and sellers, making it difficult to quickly trade your ETF shares at the desired price.

‍

Definition:

A budget deficit arises when a projected revenue of a is less than the planned spending for a certain budget period.

‍

What is a Budget Deficit?
‍

For everybody who works with money, the budget is an essential aspect of forecasting. People frequently create family budgets. Budgets are also required by businesses and governments in order to plan their spending. Budgets often include information about the individual planning the budget’s projected income, the money he expects to spend, and how he intends to spend it. If a person/company/state intends to spend more money than they gain, the gap between revenue and spending is the budget deficit for the current fiscal term.

The phrase budget deficit is most commonly used in the context of governmental finances.

‍

Causes of governments’ budget deficit
‍

The reasons are quite clear. In many cases a state’s administration wants to spend more money than it can afford to pay through tax income. Governments spend billions or trillions of dollars each year, and determining what tax rate to charge to generate enough money to pay the expenditures may be challenging. The government may be hesitant to raise the tax rate substantially or may wish to cut taxes in order to gain citizens’ sympathy.

Another possible explanation of why governments spend more than they receive is that certain governments have the ability to simply borrow or create money. The hunt for cash to pay the deficit is one of the major concerns of a budget deficit. Because some governments may create money to cover the deficit, they may delay repayment, and other stronger nations may not repay the debt – but, creating too much money may lead to inflation.

‍

Budget deficit risks
‍

One of the primary concerns of a budget deficit is that an organization may be unable to pay its expenses. There are two options to overspend if a person plans to make $60,000 and spend $75,000 in the same year. One of them is to get a borrower who will lend you $15,000. The second option is to spend your funds of $15,000.

If the ordinary person/company continues to run a financial deficit, none of these solutions are viable. They will wind up with a rather big debt amount.

Budget deficits provide less danger for some countries since they may have a solid credit rating, allowing them to borrow large sums of money at relatively low/stable interest rates. Even if they have difficulty finding creditors, governments may frequently issue currency to fulfill their expenditures. When a government runs a budget deficit, however, there is a danger of long-term financial harm and perhaps runaway inflation.

‍

Consequences of government deficit
‍

One of the results of the federal budget deficit is a decrease in saving rate and an increase in debt. To borrow money, the government frequently goes to foreign countries. This gives these countries power in government policies. Lower savings may also result in increased interest rates, weakening the economy. When interest rates are high, consumers have greater motivation to keep money by limiting consumptions, which can decrease the economy.

When governments borrow money, they must pay it back over time. Because of the interest cost, the government’s spending is expected to be larger next year as a result of this year’s budget deficit. The government will need to decrease expenditure next year in order to balance its budget.

If a government maintains a budget deficit for an extended period of time, it will accumulate substantial debt and face significant interest expenses. This can make managing their budget while providing important services for their population even more challenging.

Long-term budget imbalances can also reflect customers’ expectations and their behavior. If the budget deficit is too enormous, investors may be cautious about purchasing government bonds, raising borrowing costs even further. Foreign governments may be worried that the government is generating more money to cover its debts, lowering the price of its currency. All of this has the potential to result in a huge economic impact.

‍

How to calculate the budget deficit?
‍

Let’s start calculating the budget deficit by summing all of a person’s, business’s, or government’s predicted incomes for a certain time. For example, if you expect to receive $50,000 from your salary and $5,000 from investments, you may add these figures together to get your forecast yearly income of $55,000.

Then count up all of the estimated costs for the year. You should budget $20,000 for taxes, $15,000 for rent, $10,000 for new home appliances, and $20,000 for any other costs. Combining these figures together gets an estimated cost of $65,000.

Finally, remove estimated costs from expected income to see if the budget is in deficit or surplus. Then you’ll have a $10,000 budget deficit.

‍

How to reduce the budget deficit?
‍

There are two simple ways:

• Spending less money: Spending reductions frequently imply lower budgets for government projects. The disadvantage of spending cutbacks on government programs is that some residents like and rely on them, and may be dissatisfied with government changes or may suffer as a result of budget reduction.

• Earning more money: There are two approaches to this. One of them is a tax rate rise. Assuming that all residents earn around the same amount, increasing the tax rate on an annual basis will supply the government with additional funds to deal with.

Increasing the country’s productivity is another strategy for increasing tax income. It is clear that if a country’s economy is growing, its residents and companies would make more money. Even though they pay the same tax rate, greater income levels result in higher taxation.

Finally, the government has the authority to force the Treasury to print more money. The disadvantage is that it can result in inflation or even hyperinflation.

‍

Definition:

Capital is an asset that is used by a company for production activities. Capital may include assets that the company uses to generate income, such as real estate, computers, manufacturing equipment, and vehicles.

‍

What is Capital?
‍

Capital is a resource of vitality for wealth creation. In conjunction with land, workforce and entrepreneurship, capital can be used to generate profits for a company’s investors.

Crucially, capital is separated from money, which can be used to purchase capital directly, but is not a productive resource itself. Capital may also refer to “working capital”, which is calculated as the difference between a company’s current assets and its current liabilities.

‍

Capital VS Money: what is the difference?
‍

People often confuse money and capital. The key difference between the two is that capital refers to the production resources of a company, that is, the materials used to create products and services. Money is used to buy fixed assets (such as factories, equipment and vehicles). The value of these assets can be measured in dollars, but money itself is not capital. In fact, money is a simple way to exchange one good for another.

‍

Capital in the economy
‍

Capital can  encourage economic growth and job creation. There is a lot of free capital during the economic boom, so it may be easier for enterprises to raise capital by selling shares or borrowing. Sometimes the amount of capital available for investment may exceed profitable opportunities. This can lead to businesses with poor prospects acquiring capital that they wouldn’t have qualified for in tougher times.
‍

However, capital often becomes scarce during the economic downturn. Investors become more conservative and prefer investments with less risk. In such conditions, even strong companies may find it difficult to find capital to grow or maintain operations.

‍

What is equity capital?
‍

Businesses need capital to operate and grow. One option for increasing equity capital is to sell stock. Equity doesn’t have a maturity date, so shareholders don’t expect to buy back their shares for cash by some fixed date.

Private companies raise equity capital through private placements that are open only to accredited investors (individuals with high equity or income, banks, insurers and other sophisticated investors). Companies that go public raise equity capital by selling shares to the general public and to investment banks. Companies use the equity capital they attract, along with other types of capital, to operate and make profits.

‍

What is debt capital?
‍

Businesses can also borrow capital through loans from individuals, financial institutions and other lenders or by selling bonds to investors. Unlike equity capital, debt must be repaid to the investor within a certain period of time.

Debt capital comes from many sources. In terms of credit, it can include banks, credit unions and other lending institutions. Public companies can also sell bonds to institutional investors, such as banks and investment funds.

‍

What is working capital?
‍

Working capital is the day-to-day operating capital of a business. It is the most commonly used measure of a company’s ability to meet short-term obligations. If a company lacks enough working capital, the futher continuation of the business may be in question.

‍Working Capital = Current Assets – Current Liabilities
‍

Current assets include cash, short-term fixed-income securities, inventories and accounts receivable. Inventories consist of goods that the business sells or, in the case of a restaurant or manufacturing business, raw materials used to make the final product.

Current liabilities include accounts payable, accrued expenses and short-term debt. Accounts payable are expenses that the company currently owes to its suppliers.

‍

Definition:

A Credit Profile Number (CPN) is a nine-digit number that resembles a Social Security number and is usually sold to people with low credit scores. This substitution is illegal and is often a fraudulent way to rebuild a credit rating.

‍

What is a CPN?
‍

Scammers present credit privacy numbers (CPNs), aka credit profile numbers, as a replacement for Social Security numbers. Some credit card companies promise that CPNs can give people with bad credit history a way to clear it, while others advertise them as a way to protect their privacy and identity. Obviously, such slogans may seem tempting, but it’s important to remember that using CPNs is illegal.

Substituting your Social Security number on credit applications is considered fraud and a federal crime. Many CPNs are stolen Social Security numbers, including children’s numbers, so using them can also lead to identity theft.

‍

What is a credit privacy number for?
‍

The idea of replacing your Social Security number may seem appealing.

A bad credit score can prevent you from getting new credit or good interest rates. In some cases, bad credit may even prevent you from finding a job or an apartment. The possibility of buying a credit card number (CPN) to use instead of your Social Security number may seem like an opportunity to get a fresh start.

In other cases, people may want to hide their Social Security numbers to protect themselves from identity theft. Many applications for loans, credit cards, jobs and apartments ask for a Social Security number. Using a CPN instead to avoid getting your Social Security number in the wrong hands may seem like a tempting proposition.

‍

Is CPN legal?
‍

Some credit card repair companies may promise you a fresh start on your credit history thanks to CPN. The reasoning is that this process is perfectly legal, but that’s far from it. If you use a CPN on your credit card application instead of your Social Security number, you may be committing a crime. Federal law prohibits people from lying on a credit or loan application or misrepresenting their Social Security number.

What’s worse is that CPNs are often stolen Social Security numbers, including those of children or deceased people. This means you could be involved in identity theft by using CPNs. This can lead to fines or even jail time.

‍

Alternatives to CPN
‍

There are different occasions in life when you may need a CPN, but we can offer more legal and secure options that can help you protect your identity or overcome a bad credit history:
‍

1) Getting a new Social Security number

The Social Security Administration (SSA) can issue a new Social Security number in several cases:

• Members of the same family have consecutive Social Security numbers, and this causes problems
• Two or more people have the same Social Security number
• The number holder has had his or her identity stolen, and this is a problem
• The person is a victim of abuse or their life is in danger
• On religious objections to certain numbers in the Social Security number.

Unfortunately, getting rid of past financial problems is not one of the reasons you can get a new Social Security number.
‍

2) Improving your credit rating

If you’re struggling to qualify for credit or loans because of a questionable credit history, it’s understandable that you would look for alternatives. There are many ways you can take control of the situation and improve your credit history.

Pay your bills on time. The longer you keep your payments on schedule, the more your credit score will increase. Check your credit reports regularly to make sure all the information on them is correct. You can order a free report once a year from each of the three major credit reporting agencies: Equifax, Experian and TransUnion.

Improving your credit takes time. The longer you go without a negative mark on your credit report, the more your score will improve.
‍

3) Identitying Theft Protection

The easiest way to protect yourself from identity theft is to not respond to suspicious phone calls, letters or emails that ask for your Social Security number or other personal information.

There are also credit and identity theft monitoring services. They can track your credit dynamics and let you know if anything suspicious happens to your Social Security number. If you don’t use a credit monitoring service, you can monitor identity theft yourself. If someone has stolen your identity, you’re sure to notice withdrawals from your bank account, debt collectors contacting you about debt you didn’t take on, and unfamiliar accounts on your credit report.

‍

How do I avoid CPM fraud?
‍

If you apply for help to repair your credit, many companies promise to help. To avoid scammers, look out for these red flags:

Any company that tells you it’s legal to use your CPN instead of your Social Security number is lying. “Credit repair” companies that advise you to pay up front, not contact the credit bureaus, dispute incorrect information on your credit report, or lie on loan applications are probably scammers.

Watch out for companies that don’t explain your legal rights when describing their services. They are required by law to be honest about what they can do for you, including explaining your legal rights and how much you will pay in total. If the company violates this law, you can sue them for your lost money and punitive damages.

‍

Definition:

A deposit is a remittance sent to a bank or supplier for safekeeping, to charge income, or to demonstrate your ability to pay for what you wish to buy. It is also distinguished by payback.

‍

What is a deposit?
‍

Overall, deposits have a significant difference from payments. A deposit is just money sent to a bank or other entity for usage or withdrawal later (it means you’ll get the money back). You can deposit money for security, easement of use, or to earn money by getting interest. Deposit accounts include current accounts, savings accounts, and certificates of deposit (CDs). Some of these accounts generate interest because banks utilize your savings to lend money to others.

A deposit is also a fraction of the money used to guarantee your ability to pay for certain goods or services. This is also known as a security deposit or a minimum deposit for opening a bank account.

A deposit on an apartment is a clear example of how a deposit works in real life. When renting an apartment, tenants frequently request it as an assurance that the renter will use the accommodation in good faith and be responsible for its safety, because otherwise, the amount of damage would be removed from the deposit for reimbursement. A deposit in the financial industry works on the same basis.

‍

A deposit on various accounts
‍

In finance, the phrase “deposit” has several meanings, but they all refer to depositing money in the control of somebody or something else. A deposit is the amount of money deposited into a financial account.

Placing cash or a check into this account means transferring funds to a bank for safekeeping and convenient access, as well as the possibility of receiving a tiny portion of your money. When you top up your brokerage account, you also make a deposit. The money you placed is still yours, and you can get it back following the terms of your account.

The FDIC insures most bank deposit accounts up to $250,000. This implies that if something occurs to the bank, the government will compensate any losses up to the deposit sum. As a result – your money is typically safe. However there isn’t any insurance in brokerage accounts, that’s why they carry a high level of risk.

A deposit is also the money you submit as collateral when purchasing products or services. Let’s take a look at creating a margin account with a brokerage company that allows you to borrow money for investing purposes. In many cases you will most likely be required to make an initial margin deposit equivalent to the amount of money you intend to borrow.

‍

How to make a deposit?
‍

A bank account is necessary if you wish to make online purchases or significant trade. A deposit is required to receive the money into the account.

There are several ways to top up your bank account, including visiting a branch, using a branch ATM, and others. Fill out a deposit ticket supplied by the bank that explains the facts of your transaction and hand it to the cashier, or place the paperwork and money in an envelope provided by the bank and insert it into the ATM. In general, deposited cash is immediately accessible for usage or to withdraw.

Checks can also be deposited at an ATM or a bank branch in the same manner that cash is. In some cases banks allow you to mail cheques or deposit them using only your phone.

Online deposits are rapidly turning into a more popular option to fund your account. You may make a deposit via Electronic Money Transfer (EFT) by sending money from one account to another. An EFT can be performed between two accounts in the same bank or between two financial organizations. You may even accomplish it using a virtual payment method, such as PayPal.

EFT is used when your company sends your salary straight to your checking or savings account. The majority of insurance deposits and minimum deposits are made by electronic funds transfer or a check.

‍

A minimum deposit
‍

When you create an account with a bank, broker, or other financial organization, you may be required to deposit a particular amount of money. This is known as a minimal deposit. To avoid fees or get interest on some bank accounts, you must keep up a minimal amount of money.

In the past brokers used to require large minimum deposits, such as $10,000 to start an account, but these minimums have changed in recent years. These processes have become more available so some brokers now need as low as $500 to start a new account, while others are asked for no minimums at all. This allows novice investors to experiment with trading platforms and research tools at absolutely no fees.

A margin account allows you to borrow money from your broker to purchase securities. The broker will need you to make an initial margin deposit, which might be in cash or securities.

‍

Types of deposit accounts
‍

There are several sorts of deposit accounts, each with its unique function. Some are intended for daily usage, while others are intended for long-term savings.

Here you can find the several types of deposit accounts:

• Checking Account: This account allows you to write checks or use a debit card. It is utilized to cover day-to-day expenditures and bills. It commonly pays a small or no interest at all.

• Savings Account: It is used to put aside money for emergencies or to accomplish a specific purpose. Savings accounts often pay very little interest.

• Money Market Account: It is similar to a combination checking and savings account, with a bigger interest rate than it could be earned by a savings account. However, these accounts may be asked for significantly higher minimum deposits as well as monthly transaction limits.

• Certificate of Deposit: The CD is intended to save money for the long term. When it’s owned for a long space of time, it pays a guaranteed fixed interest rate. CD interest rates are bigger than ones earned by savings accounts. The best rates will be found in a long-term CD. Nevertheless, if you need to make an unscheduled withdrawal, you may lose a part of the earned interest.

• Call Deposit account: It also combines the operations of a checking and savings account. You have easy access to your funds, may issue checks, and earn interest on your deposit.

‍

Definition:

Alpha is a coefficient that compares specific investment indices over time to a wider indicator, such as the market as a whole.

‍

What is Alpha?
‍

The alpha coefficient of a security indicates its profitability superiority or lag in contrast to the broader market basket – the S&P 500 index. This coefficient has a single number format. So, the figure +2 indicates that the yield of the investment exceeded the benchmark level by 2% during a certain time period.

As alpha assesses an investment’s capacity to outperform the market using historical data, it is critical to understand that previous performance does not guarantee future outcomes.

‍

Alpha and Beta: The difference
‍

Alpha and Beta are both indicators that compare a stock’s performance to that of the market as a whole, but they do so in different ways.

Alpha is concerned with the extra returns that investments generate above and beyond market returns. The volatility of the stock price relative to the market, as well as whether it is moving in the same direction as the market as a whole, is indicated by beta.
‍

Let’s take an example:

• Alpha of +3 indicates that the return on investment surpasses the return on the chosen benchmark by 3%.
• A beta of +3 indicates that an investment is three times more volatile than the market. As a result, if the market rises by 5%, the stock should rise by 15%. In contrast, if the market declines by 7%, the stock price should decrease by 21%. When beta is zero, there is no relationship between investment and the market. When beta is negative, investments are inversely linked with the market, which means they rise when the market falls and decrease when the market rises.

‍

How to calculate Alpha?
‍

There are various approaches to Alpha calculation.

• The most straightforward method is to deduct the entire return on investment from the benchmark in the same investment category. Let’s imagine that you invested in a portfolio composed exclusively of equities in 2022 and had a return of 28%. Assume the S&P 500 returned around 25% during the same time span. When you subtract the S&P 500 return from the return on your assets, you get a +3 alpha for your portfolio.

• Using CAPM. The Capital Asset Pricing Model (CAPM), a model that determines the expected return of an asset while accounting for its risk, is a more comprehensive technique to compute the alpha coefficient.

This formula employs a beta version and a risk-free rate, which is the rate of return that an investor may expect in the absence of risk.

Alpha = R – R(f) – Beta (R(m) – R(f)), where

R = return on investment

Rf = risk-free rate of return

Beta = systemic risk of any investment

Rm = basic profitability

‍

Example
‍

Let’s say the portfolio yield is 15%, the risk-free rate is 5%, the beta version of the investment is 1.2, and the base yield is 10%. You measure alpha using CAPM as follows:

‍Alpha = (0.15 – 0.05) – 1,2 (0.1 – 0.05) = +0.04

‍According to the formula, this portfolio outscored the underlying index by 0.04 percent.

‍

Important points about the Alpha coefficient
‍

The alpha value of every stock changes depending on the calculation technique and benchmark used. Alpha fluctuates throughout time, therefore it should be reviewed on a regular basis.

When comparing investments with alpha, keep the following best practices in mind:

• A critical disclaimer: While the alpha coefficient may be computed for other asset classes, it is best suited for shares.
• The significance of comparative evaluation: it is essential to compare oranges with oranges rather than tomatoes. A fund specialized in real estate businesses, for example, is not the same as a fund focusing on mid-cap corporations.
• Compare various investments using the same benchmark: comparing a fund with an alpha index based on the S&P 500 to a fund with an alpha index based on the Nasdaq-100 is improper.
• Alpha is not an infallible indicator: the coefficient is generated based on prior indications, thus it is only an estimate. This does not guarantee what will occur in the future.

‍