query: Selling non-dividend for dividend stocks

positive: Is selling Vested RSU is the same as selling a regular stock? Yes. Your basis (to calculate the gain) is what you've been taxed on when the RSUs vested. Check your payslips/W2 for that period, and the employer should probably have sent you detailed information about that. I'm not a US citizen, my account is in ETrade and my stocks are of a   US company, what pre arrangements I need to take to avoid tax issues? You will pay capital gains taxes on the sale in Israel. Depending on where you were when you earned the stocks and what taxes you paid then - it may open additional issues with the Israeli tax authority. Check with an Israeli tax adviser/accountant.

negative: "In financial theory, there is no reason for a difference in investor return to exist between dividend paying and non-dividend paying stocks, except for tax consequences.  This is because in theory, a company can either pay dividends to investors [who can reinvest the funds themselves], or reinvest its capital and earn the same return on that reinvestment [and the shareholder still has the choice to sell a fraction of their holdings, if they prefer to have cash]. That theory may not match reality, because often companies pay or don't pay dividends based on their stage of life.  For example, early-stage mining companies often have no free cashflow to pay dividends [they are capital intensive until the mines are operational]. On the other side, longstanding companies may have no projects left that would be a  good fit for further investment, and so they pay out dividends instead, effectively allowing the shareholder to decide where to reinvest the money. Therefore, saying ""dividend paying""/""growth stock"" can be a proxy for talking about the stage of life + risk and return of a company. Saying dividend paying implies ""long-standing blue chip company with relatively low capital requirements and a stable business"". Likewise ""growth stocks"" [/ non-dividend paying] implies ""new startup company that still needs capital and thus is somewhat unproven, with a chance for good return to match the higher risk"". So in theory, dividend payment policy makes no difference. In practice, it makes a difference for two reasons: (1) You will most likely be taxed differently on selling stock vs receiving dividends [Which one is better for you is a specific question relying on your jurisdiction, your current income, and things like what type of stock / how long you hold it]. For example in Canada, if you earn ~ < $40k, your dividends are very likely to have a preferential tax treatment to selling shares for capital gains [but your province and specific other numbers would influence this]. In the United States, I believe capital gains are usually preferential as long as you hold the shares for a long time [but I am not 100% on this without looking it up]. (2) Dividend policy implies differences in the stage of life / risk level of a stock. This implication is not guaranteed, so be sure you are using other considerations to determine whether this is the case.  Therefore which dividend policy suits you better depends on your tax position and your risk tolerance."

negative: It depends on your investment profile but basically, dividends increase your taxable income. Anyone making an income will effectively get 'lower returns' on their investments due to this effect. If you had the choice between identical shares that either give a dividend or don't, you'll find that stock that pays a dividend has a lower price, and increases in value more slowly than stock that doesn't. (all other things being equal)  There's a whole bunch of economic theory behind this but in short, the current stock price is a measure of how much the company is worth combined with an estimation of how much it will be worth in the future (NPV of all future dividends is the basic model). When the company makes profit, it can keep those profits, and invest in new projects or distribute a portion of those profits to shareholders (aka dividends). Distributing the value to shareholders reduces the value of the company somewhat, but the shareholders get the money now. If the company doesn't give dividends, it has a higher value which will be reflected in a higher stock price.  So basically, all other things being equal (which they rarely are, but I digress) the price and growth difference reflects the fact that dividends are paying out now. (In other words, if you wanted non-dividend shares you could get them by buying dividend shares and re-investing the dividend as new shares every time there was a payout, and you could get dividend-share like properties by selling a percentage of non-dividend shares periodically). Dividend income is taxable as part of your income right away, however taxes on capital gains only happen when you sell the asset in question, and also has a lower tax rate. If you buy and hold Berkshire Hatheway, you will not have to pay taxes on the gains you get until you decide to sell the shares, and even then the tax rate will be lower. If you are investing for retirement, this is great, since your income from other sources will be lower, so you can afford to be taxed then. In many jurisdictions, income from capital gains is subject to a different tax rate than the rest of your income, for example in the US for most people with money to invest it's either 15% or 20%, which will be lower than normal income tax would be (since most people with money to invest would be making enough to be in a higher bracket). Say, for example, your income now is within the 25% bracket. Any dividend you get will be taxed at that rate, so let's say that the dividend is about 2% and the growth of the stock is about 4%. So, your effective growth rate after taxation is 5.5% -- you lose 0.5% from the 25% tax on the dividend. If, instead, you had stock with the same growth but no dividend it would grow at a rate of 6%. If you never withdrew the money, after 20 years, $1 in the dividend stock would be worth ~$2.92 (1.055^20), whereas $1 in the non-dividend stock would be worth ~$3.21 (1.06^20). You're talking about a difference of 30 cents per dollar invested, which doesn't seem huge but multiply it by 100,000 and you've got yourself enough money to renovate your house purely out of money that would have gone to the government instead. The advantage here is if you are saving up for retirement, when you retire you won't have much income so the tax on the gains (even ignoring the capital gains effect above) will definitely be less then when you were working, however if you had a dividend stock you would have been paying taxes on the dividend, at a higher rate, throughout the lifetime of the investment.  So, there you go, that's what Mohnish Pabrai is talking about. There are some caveats to this. If the amount you are investing isn't large, and you are in a lower tax bracket, and the stock pays out relatively low dividends you won't really feel the difference much, even though it's there. Also, dividend vs. no dividend is hardly the highest priority when deciding what company to invest in, and you'll practically never be able to find identical companies that differ only on dividend/no dividend, so if you find a great buy you may not have a choice in the matter.  Also, there has been a trend in recent years to also make capital gains tax progressive, so people who have a higher income will also pay more in capital gains, which negates part of the benefit of non-dividend stocks (but doesn't change the growth rate effects before the sale).  There are also some theoretical arguments that dividend-paying companies should have stronger shareholders (since the company has less capital, it has to 'play nice' to get money either from new shares or from banks, which leads to less risky behavior) but it's not so cut-and-dried in real life.

negative: "This is an excellent question, one that I've pondered before as well. Here's how I've reconciled it in my mind. Why should we agree that a stock is worth anything? After all, if I purchase a share of said company, I own some small percentage of all of its assets, like land, capital equipment, accounts receivable, cash and securities holdings, etc., as others have pointed out. Notionally, that seems like it should be ""worth"" something.  However, that doesn't give me the right to lay claim to them at will, as I'm just a (very small) minority shareholder. The old adage says that ""something is only worth what someone is willing to pay you for it."" That share of stock doesn't actually give me any liquid control over the company's assets, so why should someone else be willing to pay me something for it? As you noted, one reason why a stock might be attractive to someone else is as a (potentially tax-advantaged) revenue stream via dividends. Especially in this low-interest-rate environment, this might well exceed that which I might obtain in the bond market. The payment of income to the investor is one way that a  stock might have some ""inherent value"" that is attractive to investors. As you asked, though, what if the stock doesn't pay dividends? As a small shareholder, what's in it for me? Without any dividend payments, there's no regular method of receiving my invested capital back, so why should I, or anyone else, be willing to purchase the stock to begin with? I can think of a couple reasons: Expectation of a future dividend. You may believe that at some point in the future, the company will begin to pay a dividend to investors. Dividends are paid as a percentage of a company's total profits, so it may make sense to purchase the stock now, while there is no dividend, banking on growth during the no-dividend period that will result in even higher capital returns later. This kind of skirts your question: a non-dividend-paying stock might be worth something because it might turn into a dividend-paying stock in the future. Expectation of a future acquisition. This addresses the original premise of my argument above. If I can't, as a small shareholder, directly access the assets of the company, why should I attribute any value to that small piece of ownership? Because some other entity might be willing to pay me for it in the future. In the event of an acquisition, I will receive either cash or another company's shares in compensation, which often results in a capital gain for me as a shareholder.  If I obtain a capital gain via cash as part of the deal, then this proves my point: the original, non-dividend-paying stock was worth something because some other entity decided to acquire the company, paying me more cash than I paid for my shares. They are willing to pay this price for the company because they can then reap its profits in the future. If I obtain a capital gain via stock in as part of the deal, then the process restarts in some sense. Maybe the new stock pays dividends. Otherwise, perhaps the new company will do something to make its stock worth more in the future, based on the same future expectations. The fact that ownership in a stock can hold such positive future expectations makes them ""worth something"" at any given time; if you purchase a stock and then want to sell it later, someone else is willing to purchase it from you so they can obtain the right to experience a positive capital return in the future. While stock valuation schemes will vary, both dividends and acquisition prices are related to a company's profits: This provides a connection between a company's profitability, expectations of future growth, and its stock price today, whether it currently pays dividends or not."

negative: > You also have to think about tax on dividends from these stock options, which is only 15%, which is paltry to regular incometax rate that the rich pay on their salaries  dividends is just cash being removed from companies and being paid out directly to the stockholder  if dividends get taxed at a higher rate, every company would just use that same cash to buy back shares since that would be more tax efficient - the stockholder would receive compensation in higher stock prices which they could then sell instead of receiving a dividend. Thus, they would pay capital gains rate instead of your new dividend rate.  The dividend rate must be the same as capital gains rate for this reason. They are not free money since the stock price gets decreased when a dividend is paid out - the company gets poorer when they pay out the dividend.

negative: "If so, then if company A never pays dividends to its shareholders, then what is the point of owning company A's stock? The stock itself can go up in price. This is not necessarily pure speculation either, the company could just reinvest the profits and grow. Since you own part of a company, your share would also increase in value. The company could also decide to start paying dividend. I think one rule of thumb is that growing companies won't pay out, since they reinvest all profit to grow even more, but very large companies like McDonalds or Microsoft who don't really have much room left to grow will pay dividends more. Surely the right to one vote for company A's Board can't be that valuable.  Actually, Google for instance neither pays dividend nor do you get to vote. Basically all you get for your money is partial ownership of the company. This still gives you the right to seize Google assets if you go bankrupt, if there's any asset left once the creditors are done (credit gets priority over equity). What is it that I'm missing? What you are missing is that the entire concept of the dividend is an illusion. There's little qualitative difference between a stock that pays dividend, and a stock that doesn't. If you were going to buy the stock, then hold it forever and collect dividend, you could get the same thing with a dividend-less stock by simply waiting for it to gain say 5% value, then sell 4.76% of your stock and call the cash your dividend. ""But wait,"" you say, ""that's not the same - my net worth has decreased!"" Guess what, stocks that do pay dividend usually do drop in value right after the pay out, and they drop by about the relative value of the dividend as well. Likewise, you could take a stock that does pay dividend, and make it look exactly like a non-paying stock by simply taking every dividend you get and buying more of the same stock with it. So from this simplistic point of view, it is irrelevant whether the stock itself pays dividend or not. There is always the same decision of whether to cut the goose or let it lay a few more eggs that every shareholder has to make it. Paying a dividend is essentially providing a different default choice, but makes little difference with regards to your choices. There is however more to it than simple return on investment arithmetic: As I said, the alternative to paying dividend is reinvesting profits back into the enterprise. If the company decided to pay out dividend, that means they think all the best investing is done, and they don't really have a particularly good idea for what to do with the extra money. Conversely, not paying is like management telling the shareholders, ""no we're not done, we're still building our business!"". So it can be a way of judging whether the company is concentrating on generating profit or growing itself. Needless to say the, the market is wild and unpredictable and not everyone obeys such assumptions. Furthermore, as I said, you can effectively overrule the decision by increasing or decreasing your position, regardless of whether they have decided to pay dividend to begin with. Lastly, there may be some subtle differences with regards to things like how the income is taxed and so on. These don't really have much to do with the market itself, but the bureaucracy tacked onto the market."

negative: I think you are mixing up forward looking statements with the actual results. The funds objective   The fund invests primarily in stocks that tend to offer current dividends. It focuses on high-quality companies that have prospects for long-term total returns as a result of their ability to grow earnings and their willingness to increase dividends over time Obviously in 1993 quite a few companies paid the dividends and hence VDIGX was able to give dividends. Over the period of years in some years its given more and in some years less. For example the Year 2000 it gave $ 1.26, 1999 it gave $ 1.71 and in 1998 it gave $ 1.87 The current economic conditions are such that companies are not making huge profts and the one's that are making prefer not to distribute dividends and hold on to cash as it would help survive the current economic conditions. So just to clarify this particular funds objective is to invest in companies that would give dividends which is then passed on to fund holders. This fund does not sell appreciated stocks to convert it into dividends.

negative: "In a sentence, stocks are a share of equity in the company, while bonds are a share of credit to the company. When you buy one share of stock, you own a (typically infinitesimal) percentage of the company. You are usually entitled to a share of the profits of that company, and/or to participate in the business decisions of that company. A particular type of stock may or may not pay dividends, which is the primary way companies share profits with their stockholders (the other way is simply by increasing the company's share value by being successful and thus desirable to investors). A stock also may or may not allow you to vote on company business; you may hear about companies buying 20% or 30% ""interests"" in other companies; they own that percentage of the company, and their vote on company matters is given that same weight in the total voting pool. Typically, a company offers two levels of stocks: ""Common"" stock usually has voting rights attached, and may pay dividends. ""Preferred"" stock usually gives up the voting rights, but pays a higher dividend percentage (maybe double or triple that of common stock) and may have payment guarantees (if a promised dividend is missed in one quarter and then paid in the next, the preferred stockholders get their dividend for the past and present quarters before the common shareholders see a penny). Governments and non-profits are typically prohibited from selling their equity; if a government sold stock it would basically be taxing everyone and then paying back stockholders, while non-profit organizations have no profits to pay out as dividends. Bonds, on the other hand, are a slice of the company's debt load. Think of bonds as kind of like a corporate credit card. When a company needs a lot of cash, it will sell bonds. A single bond may be worth $10, $100, or $1000, depending on the investor market being targeted. This is the amount the company will pay the bondholder at the end of the term of the bond. These bonds are bought by investors on the open market for less than their face value, and the company uses the cash it raises for whatever purpose it wants, before paying off the bondholders at term's end (usually by paying each bond at face value using money from a new package of bonds, in effect ""rolling over"" the debt to the next cycle, similar to you carrying a balance on your credit card). The difference between the cost and payoff is the ""interest charge"" on this slice of the loan, and can be expressed as a percentage of the purchase price over the remaining term of the bond, as its ""yield"" or ""APY"". For example, a bond worth $100 that was sold on Jan 1 for $85 and is due to be paid on Dec 31 of the same year has an APY of (15/85*100) = 17.65%. Typically, yields for highly-rated companies are more like 4-6%; a bond that would yield 17% is very risky and indicates a very low bond rating, so-called ""junk status""."

negative: "I'm not a financial expert, but saying that paying a $1 dividend will reduce the value of the stock by $1 sounds like awfully simple-minded reasoning to me. It appears to be based on the assumption that the price of a stock is equal to the value of the assets of a company divided by the total number of shares. But that simply isn't true. You don't even need to do any in-depth analysis to prove it. Just look at share prices over a few days. You should easily be able to find stocks whose price varied wildly. If, say, a company becomes the target of a federal investigation, the share price will plummet the day the announcement is made. Did the company's assets really disappear that day? No. What's happened is that the company's long term prospects are now in doubt. Or a company announces a promising new product. The share price shoots up. They may not have sold a single unit of the new product yet, they haven't made a dollar. But their future prospects now look improved. Many factors go into determining a stock price. Sure, total assets is a factor. But more important is anticipated future earning. I think a very simple case could be made that if a stock never paid any dividends, and if everyone knew it would never pay any dividends, that stock is worthless. The stock will never produce any profit to the owner. So why should you be willing to pay anything for it? One could say, The value could go up and you could sell at a profit. But on what basis would the value go up? Why would investors be willing to pay larger and larger amounts of money for an asset that produces zero income? Update I think I understand the source of the confusion now, so let me add to my answer. Suppose that a company's stock is selling for, say, $10. And to simplify the discussion let's suppose that there is absolutely nothing affecting the value of that stock except an expected dividend. The company plans to pay a dividend on a specific date of $1 per share. This dividend is announced well in advance. Everyone knows that it will be paid, and everyone is extremely confidant that in fact the company really will pay it -- they won't run out of money or any such. Then in a pure market, we would expect that as the date of that dividend approaches, the price of the stock would rise until the day before the dividend is paid, it is $11. Then the day after the dividend is paid the price would fall back to $10. Why? Because the person who owns the stock on the ""dividend day"" will get that $1. So if you bought the stock the day before the dividend, the next day you would immediately receive $1. If without the dividend the stock is worth $10, then the day before the dividend the stock is worth $11 because you know that the next day you will get a $1 ""refund"". If you buy the stock the day after the dividend is paid, you will not get the $1 -- it will go to the person who had the stock yesterday -- so the value of the stock falls back to the ""normal"" $10. So if you look at the value of a stock immediately after a dividend is paid, yes, it will be less than it was the day before by an amount equal to the dividend. (Plus or minus all the other things that affect the value of a stock, which in many cases would totally mask this effect.) But this does not mean that the dividend is worthless. Just the opposite. The reason the stock price fell was precisely because the dividend has value. BUT IT ONLY HAS VALUE TO THE PERSON WHO GETS IT. It does me no good that YOU get a $1 dividend. I want ME to get the money. So if I buy the stock after the dividend was paid, I missed my chance. So sure, in the very short term, a stock loses value after paying a dividend. But this does not mean that dividends in general reduce the value of a stock. Just the opposite. The price fell because it had gone up in anticipation of the dividend and is now returning to the ""normal"" level. Without the dividend, the price would never have gone up in the first place. Imagine you had a company with negligible assets. For example, an accounting firm that rents office space so it doesn't own a building, its only tangible assets are some office supplies and the like. So if the company liquidates, it would be worth pretty much zero. Everybody knows that if liquidated, the company would be worth zero. Further suppose that everyone somehow knows that this company will never, ever again pay a dividend. (Maybe federal regulators are shutting the company down because it's products were declared unacceptably hazardous, or the company was built around one genius who just died, etc.) What is the stock worth? Zero. It is an investment that you KNOW has a zero return. Why would anyone be willing to pay anything for it? It's no answer to say that you might buy the stock in the hope that the price of the stock will go up and you can sell at a profit even with no dividends. Why would anyone else pay anything for this stock? Well, unless their stock certificates are pretty and people like to collect them or something like that. Otherwise you're supposing that people would knowingly buy into a pyramid scheme. (Of course in real life there are usually uncertainties. If a company is dying, some people may believe, rightly or wrongly, that there is still hope of reviving it. Etc.) Don't confuse the value of the assets of a company with the value of its stock. They are related, of course -- all else being equal, a company with a billion dollars in assets will have a higher market capitalization than a company with ten dollars in assets. But you can't calculate the price of a company's stock by adding up the value of all its assets, subtracting liabilities, and dividing by the number of shares. That's just not how it works. Long term, the value of any stock is not the value of the assets but the net present value of the total future expected dividends. Subject to all sorts of complexities in real life."

negative: "To Many question and they are all treated differently. I was wondering how the logistics of interest and dividend payments are handled on assets , such as mortgages, bonds, stocks,   What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second? When the company decides to pay dividends, does it literally track   down every single owner of that stock and deposit x cents per share in   that person's bank account? (This sounds absolutely absurd and seems   like it would be a logistical nightmare). In Stocks, the dividends are issued periodically. The dividend date is declared well in advance. As on end of the day on Dividend date, the list of individuals [or entities] who own the stock is available with the Stock-Exchange / Registrar of the companies. To this list the dividends are credited in next few days / weeks via banking channel. Most of this is automated. What if the owner is some high-frequency algorithm that buys and sells bonds and stocks in fractions of a second? On bonds, things work slightly differently. An Bond is initially issued for say 95 [discount of 5%] and payment of 100 after say 5 years. So when the person sells it after an year, he would logically look to get a price of 96. Of course there are other factors that could fetch him a price of 94.50 or 95.50. So every change in ownership factors in the logical rate of interest. The person who submits in on maturity gets 100.  For the homeowner, I'm assuming he / she still makes mortgage payments to the initial bank they got the mortgage from, even if the bank no longer ""owns"" the mortgage. In this case, does the trader on the secondary market who owns the mortgage also come back to that bank to collect his interest payment? This depends on how the original financial institution sells the mortgage to new institutions. Generally the homeowner would keep paying initial financial institution and they would then take a margin and pay the secondary investor. If this was collateral-ized as Mortgage backed security, it is a very different story."

negative: "Off the top of my head, I don't know of any publicly-traded companies that routinely earmark distributions as return of capital, but theoretically, it's certainly applicable to any publicly-traded company. The Wikipedia article gives one situation in which a publicly-traded company may use return of capital: Public business may return capital as a means to increase the debt/equity ratio and increase their leverage (risk profile). Since return of capital is a distribution, it shrinks the firm's equity, thus increasing its leverage. Investopedia also has an article, Dividend Facts You May Not Know, that gives an example of when return of capital might be used: Sometimes, especially in the case of a special, large dividend, part of the dividend is actually declared by the company to be a return of capital. In this case, instead of being taxed at the time of distribution, the return of capital is used to reduce the basis of the stock, making for a larger capital gain down the road, assuming the selling price is higher than the basis. For instance, if you buy shares with a basis of $10 each and you get a $1 special dividend, 55 cents of which is return of capital, the taxable dividend is 45 cents, the new basis is $9.45 and you will pay capital gains tax on that 55 cents when you sell your shares sometime in the future. A company may choose to earmark some or all of its distribution as return of capital in order to provide shareholders with a more beneficial tax treatment. The IRS describes this different tax treatment: Distributions that qualify as a return of capital are not dividends. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock. These distributions don't necessarily count as taxable income, except in some instances: Once the basis of your stock has been reduced to zero, any further non-dividend distribution is capital gain. The IRS also states: A distribution generally qualifies as a return of capital if the corporation making the distribution does not have any accumulated or current year earnings and profits. In this case, the firm is lowering its equity because it's paying distributions out of that equity instead of accumulated earnings/profits. A company may use return of capital to maintain a distribution even in times of financial difficulty.  In the context of closed-end funds, however, return of capital can be much more complicated and can affect the fund's performance and reputation in numerous ways. Also, JB King is correct in cautioning you that ""return of capital"" is not the same thing as ""return on capital*. The latter is a method for valuing a company and determining ""how efficient a company is where it comes to using its resources."" (to quote JB King's comment again)."

negative: Would you mind adding where that additional value comes from, if not from the losses of other investors?  You asked this in a comment, but it seems to be the key to the confusion.   Corporations generate money (profits, paid as dividends) from sales.  Sales trade products for money.  The creation of the product creates value.  A car is worth more than General Motors pays for its components and inputs, even including labor and overhead as inputs.  That's what profit is:  added value.  The dividend is the return that the stock owner gets for owning the stock.   This can be a bit confusing in the sense that some stocks don't pay dividends.  The theory is that the stock price is still based on the future dividends (or the liquidation price, which you could also consider a type of dividend).  But the current price is mostly based on the likelihood that the stock price will increase rather than any expected dividends during ownership of the stock.   A comment calls out the example of Berkshire Hathaway.  Berkshire Hathaway is a weird case.  It operates more like a mutual fund than a company.  As such, investors prefer that it reinvest its money rather than pay a dividend.  If investors want money from it, they sell shares to other investors.  But that still isn't really a zero sum game, as the stock increases in value over time.   There are other stocks that don't pay dividends.  For example, Digital Equipment Corporation went through its entire existence without ever paying a dividend.  It merged with Compaq, paying investors for owning the stock.   Overall, you can see this in that the stock market goes up on average.  It might have a few losing years, but pick a long enough time frame, and the market will increase during it.  If you sell a stock today, it's because you value the money more than the stock.  If it goes up tomorrow, that's the buyer's good luck.  If it goes down, the buyer's bad luck.  But it shouldn't matter to you.  You wanted money for something.  You received the money.   The increase in the stock market overall is an increase in value.  It is completely unrelated to trading losses.  Over time, trading gains outweigh trading losses for investors as a group.  Individual investors may depart from that, but the overall gain is added value.   If the only way to make gains in the stock market was for someone else to take a loss, then the stock market wouldn't be able to go up.  To view it as a zero sum game, we have to ignore the stocks themselves.  Then each transaction is a payment (loss) for one party and a receipt (gain) for the other.  But the stocks themselves do have value other than what we pay for them.  The net present value of of future payments (dividends, buyouts, etc.) has an intrinsic worth.  It's a risky worth.  Some stocks will turn out to be worthless, but on average the gains outweigh the losses.

negative: As far as I read in many articles, all earnings (capital gains and   dividends) from Canadian stocks will be always tax-free. Right?   There's no withholding tax, ie. a $100 dividend means you get $100.  There's no withholding for capital gains in shares for anybody.  You will still have to pay taxes on the amounts, but that's only due at tax time and it could be very minor (or even a refund) for eligible Canadian dividends.  That's because the company has already paid tax on those dividends. In contrast, holding U.S. or any foreign stock that yields dividends   in a TFSA will pay 15% withholding tax and it is not recoverable. Correct, but the 15% is a special rate for regular shares and you need to fill out a W8-BEN.  Your broker will probably make sure you have every few years. But if you hold the same stock in a non-registered account, this 15%   withholding tax can be used as a foreign tax credit? Is this true or   not or what are the considerations? That's true but reduces your Canadian tax payable, it's not refundable, so you have to have some tax to subtract it from. Another consideration is foreign dividends are included 100% in income no mater what the character is.  That means you pay tax at your highest rate always if not held in a tax sheltered account. Canadian dividends that are in a non-registered account will pay   taxes, I presume and I don't know how much, but the amount can be used   also as a tax credit or are unrecoverable? What happens in order to take into account taxes paid by the company is, I read also that if you don't want to pay withholding taxes from foreign > dividends you can hold your stock in a RRSP or RRIF?  You don't have any withholding taxes from US entities to what they consider Canadian retirement accounts.  So TFSAs and RESPs aren't covered. Note that it has to be a US fund like SPY or VTI that trades in the US, and the account has to be RRSP/RRIF.  You can't buy a Canadian listed ETF that holds US stocks and get the same treatment.  This is also only for the US, not foreign like Europe or Asia. Also something like VT (total world) in the US will have withholding taxes from foreign (Europe & Asia mostly) before the money gets to the US.  You can't get that back. Just an honourable mention for the UK, there's no withholding taxes for anybody, and I hear it's on sale. But at some point, if I withdraw the money, who do I need to pay taxes, > U.S. or Canada? Canada.

negative: "I can think of one major income source you didn't mention, dividends.  Rather than withdrawing from your pension pot, you can roll it over to a SIPP, invest it in quality dividend growth stocks, then (depending on your pension size) withdraw only the dividends to live on. The goal here is that you buy quality dividend growth stocks.   This will mean you rarely have to sell your investments, and can weather the ups and downs of the market in relative comfort, while using the dividends as your income to live off of.   The growth aspect comes into play when considering keeping up with inflation, or simply growing your income.   In effect, companies grow the size of their dividend payments and you use that to beat the effects of inflation. Meanwhile, you do get the benefit of principle growth in the companies you've invested in.   I don't know the history of the UK stock market, but the US market has averaged over 7% total return (including dividends) over the long term. A typical dividend payout is not much better than your annuity option though -- 3% to 4% is probably achievable.   Although, looking at the list of UK Dividend Champion list (companies that have grown their dividend for 25 years continuous), some of them have higher yields than that right now.   Though that might be a warning sign... BTW, given all the legal changes around buy-to-lets recently (increases stamp duty on purchase, reduction in mortgage interest deduction, increased paperwork burden due to ""right to rent"" laws, etc.) you want to check this carefully to make sure you're safe on forecasting your return."

negative: "Because I feel the answers given do not wholely represent the answer you are expecting, I'd like to re-iterate but include more information. When you own stock in a company, you OWN some of that company. When that company makes profit, you usually receive a dividend of those profits. If you owned 1% of the company stock, you (should) recieve 1% of the profits. If your company is doing well, someone might ask to buy your stock. The price of that stock is (supposed) to be worth a value representative of the expected yield or how much of a dividend you'd be getting.  The ""worth"" of that, is what you're betting on when you buy the stock, if you buy $100 worth of coca cola stock and they paid $10 as dividend, you'd be pretty happy with a 10% growth in your wealth. Especially if the banks are only playing 3%. So maybe some other guy sees your 10% increase and thinks, heck.. 10% is better than 3%, if I buy your stocks, even as much as 6% more than they are worth ($106) I'm still going to be better off by that extra 1% than I would be if I left it in the bank.. so he offers you $106.. and you think.. awesome.. I can sell my $100 of cola shares now, make a $6 profit and buy $100 worth of some other share I think will pay a good dividend. Then cola publicises their profits, and they only made 2% profit, that guy that bought your shares for $106, only got a dividend of $2 (since their 'worth' is still $100, and effectively he lost $4 as a result. He bet on a better than 10% profit, and lost out when it didn't hit that. Now, (IMHO) while the stock market was supposed to be about buying shares, and getting dividends, people (brokers) discovered that you could make far more money buying and selling shares for 'perceived value' rather than waiting for dividends to show actual value, especially if you were not the one doing the buying and selling (and risk), but instead making a 0.4% cut off the difference between each purchase (broker fees). So, TL;DR,  Many people have lost money in the market to those who made money from them. But only the traders and gamblers."

negative: "The profits that the corporation had to earn to be able to pay you ""eligible"" dividends for the dividend tax credit were already taxed, and at a somewhat high corporate rate, in the case of large public companies with big profits. The dividend tax credit, which permits an individual to earn a lot from dividends and not pay any personal income tax, essentially recognizes that the profit making up the dividend was already highly taxed to begin with via corporate income tax.  It aims to eliminate double-taxation. FWIW, if you own and run a small private business in Canada and pay yourself a dividend, such dividends are considered ""non-eligible"", i.e. you don't get as much a benefit from the dividend tax credit, since small business corporate income tax rates are much lower."

negative: The value of an option has 2 components, the extrinsic or time value element and the intrinsic value from the difference in the strike price and the underlying asset price. With either an American or European option the intrinsic value of a call option can be 'locked in' any time by selling the same amount of the underlying asset (whether that be a stock, a future etc).  Further, the time value of any option can be monitised by delta hedging the option, i.e. buying or selling an amount of the underlying asset weighted by the measure of certainty (delta) of the option being in the money at expiry. Instead, the extra value of the American option comes from the financial benefit of being able to realise the value of the underlying asset early. For a dividend paying stock this will predominantly be the dividend. But for non-dividend paying stocks or futures, the buyer of an in-the-money option can realise their intrinsic gains on the option early and earn interest on the profits today. But what they sacrifice is the timevalue of the option.  However when an option becomes very in the money and the delta approaches 1 or -1, the discounting of the intrinsic value (i.e. the extra amount a future cash flow is worth each day as we draw closer to payment) becomes larger than the 'theta' or time value decay of the option. Then it becomes optimal to early exercise, abandon the optionality and realise the monetary gains upfront. For a non-dividend paying stock, the value of the American call option is actually the same as the European. The spot price of the stock will be lower than the forward price at expiry discounted by the risk free rate (or your cost of funding). This will exactly offset the monetary gain by exercising early and banking the proceeds. However for an option on a future, the value today of the underlying asset (the future) is the same as at expiry and its possible to fully realise the interest earned on the money received today. Hence the American call option is worth more. For both examples the American put option is worth more, slightly more so for the stock. As the stock's spot price is lower than the forward price, the owner of the put option realises a higher (undiscounted) intrinsic profit from selling the stock at the higher strike price today than waiting till expiry, as well as realising the interest earned. Liquidity may influence the perceived value of being able to exercise early but its not a tangible factor that is added to the commonly used maths of the option valuation, and isn't really a consideration for most of the assets that have tradeable option markets. It's also important to remember at any point in the life of the option, you don't know the future price path. You're only modelling the distribution of probable outcomes. What subsequently happens after you early exercise an American option no longer has any bearing on its value; this is now zero! Whether the stock subsequently crashes in price is irrelevent. What is relevant is that when you early exercise a call you 'give up' all potential upside protected by the limit to your downside from the strike price.

negative: "Yes, the price of a stock is what investors think the value of a stock is, which is not tied to profits or dividends by any rigid formula. But to say that therefore the price could be high even though the company is doing very poorly is hypothetically true, but unlikely in practice. Consider any other product. There is no fixed formula for the value of a used car, either. If everyone agreed that a rusting, 20-year old car that doesn't run is worth $100,000, then that's what it would sell for. But that's a pretty big ""if"" at the beginning of that sentence.  If the car had been used in some hit TV show 20 years ago, or if it was owned by a celebrity, or some such special case, maybe a rusting old car really would sell for $100,000. Likewise, a stock might have a price higher than what one would predict from its dividends if some rich person wanted to buy that company because the brand name brings back nostalgic memories from his youth and so he drives the price up, etc. But the normal case is that, in the long term, the price of a stock tends to settle on a value proportional to the dividends that it pays. Or rather, and this is a big caveat, the dividends that investors expect it to pay in the future. And then adjusted for all sorts of other factors and special situations, like the value of the company if it was to be liquidated, etc."

negative: The catch is that you're doing a form of leveraged investing. In other words, you're gambling on the stock market using money that you've borrowed. While it's not as dangerous as say, getting money from a loan shark to play blackjack in Vegas, there is always the chance that markets can collapse and your investment's value will drop rapidly. The amount of risk really depends on what specific investments you choose and how diversified they are - if you buy only Canadian stocks then you're at risk of losing a lot if something happened to our economy. But if your Canadian equities only amount to 3.6% of your total (which is Canada's share of the world market), and you're holding stocks in many different countries then the diversification will reduce your overall risk.  The reason I mention that is because many people using the Smith Maneuver are only buying Canadian high-yield dividend stocks, so that they can use the dividends to accelerate the Smith Maneuver process (use the dividends to pay down the mortgage, then borrow more and invest it). They prefer Canadian equities because of preferential tax treatment of the dividend income (in non-registered accounts). But if something happened to those Canadian companies, they stand to lose much of the investment value and suddenly they have the extra debt (the amount borrowed from a HELOC, or from a re-advanceable mortgage) without enough value in the investments to offset it. This could mean that they will not be able to pay off the mortgage by the time they retire!


query: What should I do with my $25k to invest as a 20 years old?

positive: "My original plan was to wait for the next economic downturn and invest   in index funds. These funds have historically yielded 6-7% annually   when entered at any given time, but maybe around 8-9% annually when   entered during a recession. These numbers have been adjusted for   inflation. Questions or comments on this strategy? Educate yourself as index funds are merely a strategy that could be applied to various asset classes such as US Large-cap value stocks, Emerging Market stocks, Real Estate Investment Trusts, US Health Care stocks, Short-term bonds, and many other possibilities. Could you be more specific about which funds you meant as there is some great work by Fama and French on the returns of various asset classes over time. What about a Roth IRA? Mutual fund? Roth IRA is a type of account and not an investment in itself, so while I think it is a good idea to have Roth IRA, I would highly advise researching the ins and outs of this before assuming you can invest in one. You do realize that index funds are just a special type of mutual fund, right? It is also worth noting that there are a few kinds of mutual funds: Open-end, exchange-traded and closed-end. Which kind did you mean? What should I do with my money until the market hits another   recession? Economies have recessions, markets have ups and downs. I'd highly consider forming a real strategy rather than think, ""Oh let's toss it into an index fund until I need the money,"" as that seems like a recipe for disaster. Figure out what long-term financial goals do you have in mind, how OK are you with risk as if the market goes down for more than a few years straight, are you OK with seeing those savings be cut in half or worse?"

positive: I don't like your strategy.  Don't wait.  Open an investment account today with a low cost providers and put those funds into a low cost investment that represents as much of the market as you can find. I am going to start by assuming you are a really smart person.  With that assumption I am going to assume you can see details and trends and read into the lines.  As a computer programmer I am going to assume you are pretty task oriented, and that you look for optimal solutions. Now I am going to ask you to step back.  You are clearly very good at managing your money, but I believe you are over-thinking your opportunity. Reading your question, you need a starting place (and some managed expectations), so here is your plan: Now that you have a personal retirement account (IRA, Roth IRA, MyRA?) and perhaps a 401(k) (or equivalent) at work, you can start to select which investments go into that account.  I know that was your question, but things you said in your question made me wonder if you had all of that clear in your head. The key point here is don't wait.  You won't be able to time the market; certainly not consistently.  Get in NOW and stay in.  You adjust your investments based on your risk tolerance as you age, and you adjust your investments based on your wealth and needs.  But get in NOW.   Over the course of 40 years you are likely to be working, sometimes the market will be up, and sometimes the market will be down; but keep buying in.  Because every day you are in, you money can grow; and over 40 years the chances that you will grow substantially is pretty high.  No need to wait, start growing today. Things I didn't discuss but are important to you:

positive: Waiting for the next economic downturn probably isn't the best plan at this point. While it could happen tomorrow, you may end up waiting a long time. If you would prefer not to think much about your investment and just let them grow then mutual funds are a really good option. Make sure you research them before you buy into any and make sure to diversify, as in buy into a lot of different mutual funds that cover different parts of the market. If you want to be more active in investing then start researching the market and stick to industries you have  very good understanding of. It's tough to invest in a market you know nothing about. I'd suggest putting at least some of that into a retirement savings account for long term growth. Make sure you look at both your short term and long term goals. Letting an investment mature from age 20 through to retirement will net you plenty of compound interest but don't forget about your short term goals like possible cars, houses and families. Do as much research as you can and you will be fine!

positive: Investing is really about learning your own comfort level.  You will make money and lose money. You will make mistakes but you will also learn a great deal. First off, invest in your own financial knowledge, this doesn't require capital at all but a commitment. No one will watch or care for your own money better than yourself. Read books, and follow some companies in a Google Finance virtual portfolio. Track how they're doing over time - you can do this as a virtual portfolio without actually spending or losing money.  Have you ever invested before? What is your knowledge level? Investing long term is about trying to balance risk while reducing losses and trying not to get screwed along the way (by people).  My personal advice: Go to an independent financial planner, go to one that charges you per hour only. Financial planners that don't charge you hourly get paid in commissions. They will be biased to sell you what puts the most money in their pockets. Do not go to the banks investment people, they are employed by the banks who have sales and quota requirements to have you invest and push their own investment vehicles like mutual funds. Take $15k to the financial planner and see what they suggest. Keep the other $5K in something slow and boring and $1k under your mattress in actual cash as an emergency. While you're young, compound interest is the magic that will make that $25k increase hand over fist in time. But you need to have it consistently make money. I'm young too and more risk tolerant because I have time. While I get older I can start to scale back my risk because I'm nearing retirement and preserve instead of try to make returns.

positive: "I recommend a Roth IRA. At your age you could turn 25K into a million and never pay taxes on these earnings. Of course there are yearly limits (5.5k) on the amount your can contribute to a Roth IRA account. If you haven't filed your taxes this year yet ... you can contribute 5.5K for last year and 5.5K for this year.  Open two accounts at a discount brokerage firm. Trades should be about $10 or less per. Account one ... Roth IRA. Account two a brokerage account  for the excess funds that can't be placed in the Roth IRA. Each year it will be easy transfer money into the Roth from this account. Be aware that you can't transfer stocks from brokerage acct to Roth IRA ... only cash. You can sell some stocks in brokerage and turn that into cash to transfer. This means settling up with the IRS on any gains/losses on that sale. Given your situation you'd likely have new cash to bring to table for the Roth IRA anyway. Invest in stocks and hold them for the long term. Do a google search for ""motley fool stock advisor"" and join. This is a premium service that picks two stocks to invest in each month. Invest small amounts (say $750) in each stock that they say you should buy. They will also tell you when to sell. They also give insights into why they selected the stock and why they are selling (aka learning experience).  They pick quality companies. So if the economy is down you will still own a quality company that will make it through the storm. Avoid the temptation to load up on one stock. Follow the small amount rule mentioned above per stock. Good luck, and get in the market."

negative: Sure! Started working since I was 12, used that money to buy a car, and was working full time starting at 15 years old. By 17 had two full time jobs and banked all that money, besides buying a car.  At 18 fulfilled my dream and was hired as a police officer. Did the academy for 6 months, saving all of that money to buy a trailer to live in for cheap.  Max out pay for my department was 5 years, so by 23 years old I was making 68,000 a year. With overtime and details included( I basically worked anytime I could, 8 hour shift with either an 8 hour detail or double shift) usually kept one day off, working my other day off.   My take home for the year after taxes was somewhere around 90k give or take, with my living expenses barely passing 25k a year. Banked all that money for years. When I hit 25ish I got together with my now wife, also an officer making the same amount. She also received about 300k from a settlement. So with both of our salaries plus money invested since I was about 14, annual take home was about 200k.   Saved for 2 more years and at 28, used the 300k to buy a house and pay off any vehicles and credit card debt.  Paid cash for the house so no mortgage, no car payments, just utilities and taxes for the year.  With the budget set we were able to retire living just like we were. There is a lot more to it but that's the quick summary!

negative: "Why it is good to be risky The reason why it is good to be risky is because risky investments can result in higher returns on your money. The problem with being risky, is there is a chance you can lose money. However, in the long term you can usually benefit from higher returns even if you have a few slip ups. Let me show you an example:  These two lines are based off of placing $2,000 in a retirement fund at age of 20 and then at age of 25 start investing $6,500 a year (based off of a salary of $65,000 with a company that will 1 to 1 match up to 5% IRA contribution, presumably someone with a Master's should be able to get this) and then being able to increase your contribution amount by $150 a year as your salary begins to increase as well. The blue line assumes that all of this money that you are putting in a retirement account has a fixed 3% interest (compounded yearly for simplicity sake) every year until you retire. The red line is earning a 12% interest rate while you are 20 years old and then decreasing by 0.5% per year until you retire. Since this is using more risky investments when you are younger, I have even gone ahead and included losing 20% of your money when you are 24, another 20% when you are 29, and then again another 20% when you are 34. As you can see, even with losing 20% of your money 3 different times, you still end up with more money then you would have had if you stuck with a more conservative investment plan. If I change this to 50% each 3 times, you will still come out about equal to a more conservative investment. Now, I do have these 3 loses placed at a younger age when there is less to lose, but this is to be expected since you are being more risky when you are young. When you are closer to retirement you have less of a chance of losing money since you will be investing more conservatively. Why it is OK to be risky when you are young but not old Lets say you loose 20% of your $2,000 when you are young, you have 30-40 years to make that back. That's roughly $1 a month extra that you are having to come up with. So, if you have a risky investment go bad when you are young, you have plenty of time to account for it before you retire.  Now lets say you have $1,000,000 when you are 5 years from retiring and loose 20% of it, you have to come up with an extra $3,333 a month if you want to retire on time. So, if you have a risky investment go bad when you are close to retiring, you will most likely have to work for many more years just to be able to recover from your loses. What to invest in This is a little bit more difficult question to answer. If there was one ""right"" way to invest your money, every one would be doing that one ""right"" way and would result in it not turning out to be that good of investment. What you need to do is come up with a plan for yourself. My biggest advice that I can give is to be careful with fees. Some places will charge a fixed dollar amount per trade, while others might charge a fixed dollar amount per month, while even others might charge a percentage of your investment. With only having $2,000 to invest, a large fee might make it difficult to make money."

negative: In addition to evaluating the business (great answer), consider the potential payoff. If bonds pay off in the 5-10% range, the S&P500 has averged 10.5%. You should be expecting a payoff of 15-20% to invest in something riskier than the stock market.  That means that if you invest $10k, then in 5 years you'll need to get out $25K (20% returns over 5 years).   If you get less than this much in 5 years, the risk-to-reward ratio probably rules this out as a good investment.

negative: I wouldn't say you should have any particular limit, but it can't hurt to have a higher limit. I'd always accept the increase when offered, and feel free to request it sometimes, just make sure you find out if it will be a hard or soft inquiry, and pass on the hard inquires. From my own experience, there doesn't seem to be any rhyme or reason to the increases. I believe each bank acts differently based on the customer's credit, income, and even the bank's personal quotas or goals for that period. Here is some anecdotal evidence of this: I got my first credit card when I was 18 years old and a freshman in college. It had a limit of $500 at the time. I never asked for a credit line increase, but always accepted when offered one, and sometimes they didn't even ask, and in the last 20 years it worked it's way up to $25K. Another card with the same bank went from $5K to $15K in about 10 years. About 6 years ago I added two cards, one with a $5K limit and one with a $3K limit. I didn't ask for increases on those either, and today the 5K is up to $22K, and the 3K is still at $3K.  An even larger disparity exists on the business side. Years ago I had two business credit cards with different banks. At one point in time both were maxed out for about 6 months and only minimums were being paid. Bank 1 started lowering my credit limit as I started to pay off the card, eventually prompting me to cancel the card when it was paid in full. At the same time Bank 2 kept raising my limit to give me more breathing room in case I needed it. Obviously Bank 1 didn't want my business, and Bank 2 did. Less than a year later both cards were paid off in full, and you can guess which bank I chose to do all of my business with after that.

negative: "I am reminded of a dozen year old dialog. I asked my 6 year old, ""If we call a tail a leg, how many legs does a dog have?"" She replied, ""Four, you can call it anything you want, but the dog still has four legs.""  Early on in my marriage, my wife was heading out to the mall, and remarked that she was ""going to invest in a new pair of shoes."" I explained to her that while I was happy she would have new shoes to wear, words have meaning, and unless she was going to buy the ruby red slippers Dorothy wore in the Wizard of Oz, or Elvis' Blue Suede Shoes, her's were not expected to rise in value and weren't an investment. Some discussion followed, and we agreed even the treadmill, which is now 20 years old, was not an 'investment' despite the fact that it saved us more than its cost in a combined 40 years of gym memberships we did not buy.  In the end, no one who is financially savvy calls a lottery ticket an investment, and few who buy them acknowledge that it's simply throwing money away."

negative: At 19 years old you can and should be investing to see your money grow over the years. Reinvesting the dividends does get to be pretty significant because they compound over many years. Historically this dividend compounding accounts for about half of the total gains from stocks. At 70 years old I am not investing to see my money grow, although that's nice. I am investing to eat. I live on the dividends, and they tend to come in fairly reliably even as the market bounces up and down. For stocks selected with this in mind I get about 4% per year from the dividends.

negative: How much should my down payment be? Ideally 20% of the purchase price because with 20% of the purchase price, you don't have to pay a costly private mortgage insurance (PMI).  If you don't have 20% down and come across a good property to purchase, it is still a good idea to go forward with purchasing with what you are comfortable with, because renting long term is generally never a good idea if you want to build wealth and become financially independent. How much should I keep in my emergency fund? People say 3-12 months of living expenses.  Keep in mind though, in most cases, if you lose your job, you are entitled to unemployment benefits from the government. How long should my mortgage be? 30 year amortization is the best. You can always opt to pay more each month.  But having that leverage with a 30 year loan can allow you to invest your savings in other opportunities, which can yield more than mortgage interest. Best of luck!

negative: Should I convert the 401K of my old company to Traditional IRA and start investing in that instead of investing in the new employer 401K plan with high fees? Regarding the 401K funds from  the previous employer, you can: Future investments: Roll overs don't have limits, but new investments do.

negative: Since you mentioned moving, you can buy real state very cheap here in Mexico that will give you income monthly. I will tell you some numbers in case you're interested. Now to investments: you can buy houses for rent, and prices are as follows: Average house $25k which will give about $220 monthly of income. Let's say you buy 20 of these that would be $4400 USD monthly. Now you have a very high standard here and you will never have to work again, and each year the income will increase about 2% and you still have $576k left.

negative: "In my opinion, the key variable for you (and others) is not age, but ""vintage."" Your ""age"" suggests that you were born in the mid-1980s, in the middle of a bull market. The most remunerative investing periods for you are likely to be in your childhood (past) and middle age (forties and early fifties). Also your, ""old-old"" period (around age 80, in the 2060s), if you live that long. For now, you can, and perhaps should invest cautiously, like today's 40-year olds, with a heavy emphasis on bonds. The main difference between you and them is that you can shift to stocks in about ten years, in your mid to late 30s, while they will find it harder to do so when approaching old age."

negative: "Oh look, exactly what technology folks have been saying for a while now!  ""They're just asking for the moon, and not expecting to pay very much for it,"" Cappelli says. ""And as a result they [can't] find those people. Now that [doesn't] mean there was nobody to do the job; it just [means] that there was nobody at the price they were willing to pay.""  Wanted, graybeard with 20 years programming experience in obscure languages on expensive and rare systems. Starting pay $25k, expected to work 60 hours a week and be oncall all the time."

negative: Cryptocurrency investments. Got lucky and turned 1k into 50k in a month. 25k given to me from family members and 25k saved from working. I have a college degree btw. I just can't use it because i have deeprooted anxiety issues keeping me underemployed. Anyway 100k isn't a lot. I can't even buy a house and can barely even get a downpayment where i live and i wouldn't come close to being able to pay my mortgage.

negative: "For the really big money, you've missed the boat. Most will have MSc's in finance by now; which, even in my day 20 years ago, was a minimum entry requirement.  There's a well known book of questions that used to get asked in interviews called ""Heard on the Street"". It'll let you know whether you can cut it on the floor or you're better off in middle or back office. It's very old but typical of the understanding and mind type you need.  Investment management should be a possible. It's a totally different pace of life.  If you're talking accounting, you'll be fine!"

negative: $10.90 for every $1000 per year. Are you kidding me!!! These are usually hidden within the expense ratio of the plan funds, but >1% seems to be quite a lot regardless. FUND X 1 year return 3% 3 year return 6% 10 year return 5% What does   that exactly mean? This is the average annual rate of return. If measured for the last 3 years, the average annual rate of return is 6%, if measured for 1 year - it's 3%. What it means is that out of the last 3 years, the last year return was not the best, the previous two were much better. Does that mean that if I hold my mutual funds for 10 years I will get   5% return on it. Definitely not. Past performance doesn't promise anything for the future. It is merely a guidance for you, a comparison measure between the funds. You can assume that if in the past the fund performed certain way, then given the same conditions in the future, it will perform the same again. But it is in no way a promise or a guarantee of anything. Since my 401K plan stinks what are my options. If I put my money in a   traditional IRA then I lose my pre tax benefits right! Wrong, IRA is pre-tax as well. But the pre-tax deduction limits for IRA are much lower than for 401k.  You can consider investing in the 401k, and then rolling over to a IRA which will allow better investment options. After your update: Just clearing up the question. My current employer has a 401K. Most of   the funds have the expense ratio of 1.20%. There is NO MATCHING   CONTRIBUTIONS. Ouch. Should I convert the 401K of my old company to Traditional IRA and   start investing in that instead of investing in the new employer 401K   plan with high fees. You should probably consider rolling over the old company 401k to a traditional IRA. However, it is unrelated to the current employer's 401k. If you're contributing up to the max to the Roth IRA, you can't add any additional contributions to traditional IRA on top of that - the $5000 limit is for both, and the AGI limitations for Roth are higher, so you're likely not able to contribute anything at all to the traditional IRA. You can contribute to the employer's 401k. You have to consider if the rather high expenses are worth the tax deferral for you.

negative: You're right, of course - But that's not something you would ever want to do *accidentally*.   Five years from now, the OP may well decide to convert some of his traditional funds to Roth; for now, even though Roth was his original intent, that would mean a tax bloodbath come next April.   As an aside, the biggest reason (for most people) to have Roth funds **isn't** because you expect to make more (inflation - or more importantly, tax-code - adjusted) in retirement than now.  If that were the case, the entire concept would be almost worthless - Who the heck makes more *after* retiring than *before*?  The best reason to have substantial Roth funds in your retirement portfolio is the way that Social Security is taxed.  If you can keep your AGI under $25k (note that includes half of your SS benefits, but since the standard deduction is roughly $10k, those more-or-less cancel each other out), you don't pay a dime in taxes on your SSI.  So, if you have a solid budget, take your yearly expenses, subtract out $25k, and that's what you should (sustainably) have in Roth funds.  The remaining $25k is what you should have in traditional funds.

negative: Buddy I know how a student investment club works, my school had a great one but thanks for the explanation. Doesn't change the fact that a valuation by some college kids is meaningless, but you wouldn't understand that because you're still a 20 year old kid with no industry experience. I love that you're bragging about your college to someone who has already graduated and made it into the industry, shows you really have no accomplishments to speak of.

negative: I work in marketing - there's always spillover. We love hypertargeting people but it's still effective to target a broad audience so overall awareness of your brand is higher than your competitors.  Seems like a waste to serve a 20 year old a Rocket Mortage ad. But 20 year olds become 30 year olds eventually.

negative: "I don't think this is a good model to sell cloths - very costly, slow and a lot of returns.  Clothing and fashion stores could easily fight this and sell more than they do now. I say ""could"" because they should have done it many many years ago. To stuck in their old-fashioned way.  I would prefer to go to a Showroom (not a store) that has huge selection on display, possibly fashion expert who can help select/suggest for me, try/touch the cloths there, and what I like will be ordered and shipped to my house exactly to my size.  (the old Service Merchandise mode of selling, but for clothing and fashion)."

negative: "I think that people only use the phrase ""only spend what you can afford to lose"" when they are talking about the most risky or speculative investments, or even gambling.   When talking about gambling, the following quote is a bottom line: The speculative investment that brought me to this question via google is how much should I invest in Bitcoin?  I was tempted to put in 10% of my investments, not including the 6 month safety fund and not including equity in my home.  Now thinking about this question, it seems that it depends on your income as a percentage of your investment income (which should grow in proportion to the whole over time).  For example: Early stage of career, not much investment income: 20% Mid career: 5% Mid-late career, moving to more safe investments: 5% Late career, retirement: 1% Another way to calculate would be as a percentage of the amount you put into retirement savings per year.  Maybe 10% of this figure when you're young and 1% nearer to retirement."

negative: > Get them into coding and they will never need a degree. I'm 20 years old in college and I strongly believe that is where it is all going  Don't you think that you should at least get your first job before declaring how the industry works?

negative: The bottom line is choosing the right partner. If your partner works as hard as you do, than everything should be split, irregardless of who makes more. Unfortunately, my bf, now by separated husband, borrowed money from me before we were married. I saw a lack of work ethic in him from the beginning, loved him anyway and married him but decided to keep my money separate as a result. This was a beginning with lack of trust and knowing I would be the higher earner, harder worker, and better provider. Down the road he won a lawsuit and got about $700k. I saw about $25k of this money to pay bills created with the intention of him paying them off when he got the money, and because he pilfered it away, we lost our house and it ended in my leaving.... I'm still doing ok because I work hard for what I have. He is struggling. We were never on the same page, never discussed finances because of his lack of work ethic and my mistrust of how he would decide how the money would be used. Sadly, who you decide to be your partner is the most important decision here...It should be based on mutual respect, both working hard to achieve a common goal, and communicating the budget every year, perhaps even each month.... I'm the terrible example.

negative: My equities portfolio breaks down like this: (I'm 26 years old, so it is quite aggressive) Additionally, I have a portfolio of direct real estate investments I have made over the past 4 years.  I invested very aggressively into real estate due to the financial crisis. As a result of my aggressive investing & strong growth in real estate, my overall asset breakdown is quite out of balance. (~80% Real Estate, ~20% Equities) I will be bringing this into a more sensible balance over the next few years as I unwind some of my real estate investments & reinvest the proceeds into other asset classes. As for the alternative asset groups you mentioned, I looked quite seriously at Peer to Peer lending a few years back. (Lending Club) However, interest rates were quite low & I felt that Real Estate was a better asset class to be in at the time.   Furthermore, I was borrowing heavily to fund real estate purchases at the time, and I felt it didn't make much sense to be lending cash & borrowing at the same time.  I needed every dime I could get a hold of.  :)  I will give it another look once rates come back up. I've shied away from investing in things like actively managed mutual funds, hedge funds, etc ... not because I don't think good managers can get superior returns ... rather, in my humble opinion, if they DO get above average returns then they simply charge higher management fees to reflect their good performance. Hope this helps!

negative: How do I get into Harvard Business School? I'm starting my first year in college next year and had to pass up Harvard (dream school) and two other ivies to go to my state school for financial reasons.   I don't have to decide my major for two years. What should I do (classes, internships/work experience, major, etc.) to get into HBS? What tests do I need and what are the important parts of MBA application?    Also, what jobs open up to someone with an MBA. I understand that this is a good way to get into Investment Banking? What level/salary would I start at and what other jobs/fields/companies do MBAs get hired for.   What are other good business schools? How good is UVAs Darden?

negative: Funny that this shows up on my feed right now...  I installed ICQ a couple of months ago.  I put it on my 7 year old son's iPad first, using his mum's phone number (we're divorced).  It is really the best way we can communicate quickly as she doesn't often let him pick up the phone and call - for whatever reason.  But, at 7, watching him send me messages and spell out words, it's amazing.  I haven't used ICQ in years, but it worked very well for our purposes and made me very happy.  As I'm typing this right now (no BS), someone from Indonesia has just started to message and converse with me (Canada).  Just like the old days when people used to randomly message others around the world to say hello and get to know what they were about, and what life was like (I have 20+ years online with things like this, so it's bringing back a lot of memories lol).  It's much different than what you experience in many other apps...  ads, local singles, etc.  I'm glad that it's growing again... nostalgic for a lot of people!

negative: "You may have misunderstood some parts of the system. If you make a pension contribution in any given year, the tax relief is based on your income for that year - the gross pension contribution is subtracted from your gross income and you only end up paying tax based on the reduced gross income. So if the higher rate threshold is £40K, you have income for the year of £65K, and you make a gross contribution of £25K, then you'll get tax relief at 40% on the whole contribution, i.e. £10K. If your income for the year is less, e.g. £50K, then you'll get tax relief at 40% on £10K and at 20% on the other £15K, i.e. £7K. So if you're significantly into the higher-rate band, it's usually not worth making a contribution large enough to reduce you to basic-rate tax - better to wait till the next tax year for the rest. Overall, while you probably could do what you suggest subject to the caveats below, why not just spread the pension contribution over the three years, rather than making it all up front? If you are confident you can invest the money at better than the 3.4% interest on the loan, then it might make sense to borrow, but you should be pretty clear that you're deliberately borrowing to invest (otherwise known as investing with leverage). Or you might know that your income is going to drop next year. Another clarification, as your comment on another answer mentions: basic-rate tax relief is claimed directly by your pension provider (""relief at source""), whereas the higher-rate part of the relief comes straight to you via your tax return. So for the above £25K gross contribution example, you'd hand over £20K initially and then get £5K back at the end of the tax year, leaving you with £15K less in your pocket. If you did want to make a £20K net contribution and had enough higher-rate salary to cover it, the gross contribution you'd end up with would be £33,333, and you'd need to find £6,666 more temporarily. Note that there are also limits on the annual contribution you can make of £40K (the ""annual allowance""), but you can carry forward allowances from three previous years so it's very unlikely to be relevant."

negative: That is absolute rubbish.  Warren Buffet follows simple value and GARP tenants that literally anyone could follow if they had the discipline to do so.  I have never once heard of an investment made by Warren Buffet that wasn't rooted in fundamentals and easy to understand.  The concept is fairly simple as is the math, buying great companies trading at discounts to what they are worth due to market fluctuations, emotionality, or overreactions to key sectors etc.  If I buy ABC corp at $10 knowing it is worth $20, it could go down or trade sideways for FIVE YEARS doing seemingly nothing and then one day catch up with its worth due to any number of factors.  In that case, my 100% return which took five years to actualize accounts for an average 20% return per year.  Also (and this should be obvious), but diversification is a double edged sword.  Every year, hundreds of stocks individually beat the market return.  Owning any one of these stocks as your only holding would mean that YOU beat the market.  As you buy more stocks and diversify your return will get closer and closer to that of an index or mutual fund.  My advice is to stick to fundamentals like value and GARP investing, learn to separate when the market is being silly from when it is responding to a genuine concern, do your own homework and analysis on the stocks you buy, BE PATIENT after buying stock that your analysis gives you confidence in, and don't over diversify.  If you do these things, congrats.  YOU ARE Warren Buffet.

negative: As a general rule, diversification means carrying sufficient amounts in cash equivalents, stocks, bonds, and real estate.   An emergency fund should have six months income (conservative) or expenses (less conservative) in some kind of cash equivalent (like a savings account).  As you approach retirement, that number should increase.  At retirement, it should be something like five years of expenses.  At that time, it is no longer an emergency fund, it's your everyday expenses.  You can use a pension or social security to offset your effective monthly expenses for the purpose of that fund.  You should five years net expenses after income in cash equivalents after retirement.   The normal diversification ratio for stocks, bonds, and real estate is something like 60% stocks, 20% bonds, and 20% real estate.  You can count the equity in your house as part of the real estate share.  For most people, the house will be sufficient diversification into real estate.   That said, you should not buy a second home as an investment.  Buy the second home if you can afford it and if it makes you happy.  Then consider if you want to keep your first home as an investment or just sell it now.   Look at your overall ownership to determine if you are overweighted into real estate.  Your primary house is not an investment, but it is an ownership.  If 90% of your net worth is real estate, then you are probably underinvested in securities like stocks and bonds.  50% should probably be an upper bound, and 20% real estate would be more diversified.   If your 401k has an employer match, you should almost certainly put enough in it to get the full match.   I prefer a ratio of 70-75% stocks to 25-30% bonds at all ages.  This matches the overall market diversification.  Rebalance to stay in that range regularly, possibly by investing in the underweight security.  Adding real estate to that, my preference would be for real estate to be roughly a quarter of the value of securities.  So around 60% stocks, 20% bonds, and 20% real estate.  A 50% share for real estate is more aggressive but can work.   Along with a house or rental properties, another option for increasing the real estate share is a Real Estate Investment Trust (REIT).  These are essentially a mutual fund for real estate.  This takes you out of the business of actively managing properties.   If you really want to manage rentals, make sure that you list all the expenses.  These include:   Also be careful that you are able to handle it if things change.  Perhaps today there is a tremendous shortage of rental properties and the vacancy rate is close to zero.  What happens in a few years when new construction provides more slack?   Some kinds of maintenance can't be done with tenants.  Also, some kinds of maintenance will scare away new tenants.  So just as you are paying out a large amount of money, you also aren't getting rent.  You need to be able to handle the loss of income and the large expense at the same time.   Don't forget the sales value of your current house.  Perhaps you bought when houses were cheaper.  Maybe you'd be better off taking the current equity that you have in that house and putting it into your new house's mortgage.  Yes, the old mortgage payment may be lower than the rent you could get, but the rent over the next thirty years might be less than what you could get for the house if you sold it.  Are you better off with minimal equity in two houses or good equity with one house?   I would feel better about this purchase if you were saying that you were doing this in addition to your 401k.  Doing this instead of your 401k seems sketchy to me.  What will you do if there is another housing crash?  With a little bad luck, you could end up underwater on two mortgages and unable to make payments.  Or perhaps not underwater on the current house, but not getting much back on a sale either.   All that said, maybe it's a good deal.  You have more information about it than we do.  Just...be careful.

negative: You are planning on buying a car that is 50% of your salary. Add your student debt to that and your total debt is >50% of your salary. I would suggest getting a few credit cards to build up credit, but can you manage that? Buying a 25k car with 55k salary is overspending. Get a second-hand car for 7k or so. Plus, buying a new car is not smart either, from a pricing standpoint, if you really want a new car, buy one that is 1 to 2 years old.

negative: "When you hear advice to buy index funds, that usually comes with two additional pieces of investment discipline advice that are important: These two elements are important to give you relative predictability in your outcome 20 years from now.  In this old blog post of mine I linked to Warren Buffett talking about this, also  mentioned it in a comment on another answer: http://blog.ometer.com/2008/03/27/index-funds/ It's perfectly plausible to do poorly over 20 years if you buy 100% stocks at once, without dollar-cost averaging or rebalancing. It's very very very plausible to do poorly over 10 years, such as the last 10 in fact. Can you really say you know your financial situation in 20-30 years, and for sure won't need that money? Because predictability is important, I like buying a balanced fund and not ""pure stocks"": http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ (feel a little bad linking to my blog, but retyping all that into this answer seems dumb!) Here's another tip. You can go one step past dollar cost averaging and try value averaging: http://www.amazon.com/Value-Averaging-Strategy-Investment-Classics/dp/0470049774 However, chances are you aren't even going to be good about rebalancing if it's done ""by hand,"" so personally I would not do value averaging unless you can find either a fund or a financial advisor to do it for you automatically. (Finance Buff blog makes a case for a financial advisor, in case you like that more than my balanced fund suggestion: http://thefinancebuff.com/the-average-investor-should-use-an-investment-advisor-how-to-find-one.html) Like rebalancing, value averaging makes you buy more when you're depressed about the market and less when it's exciting. It's hard.  (Dollar cost averaging is easily done by setting up automatic investment, of course, so you don't have to do it manually in the way you would with value averaging.) If you read the usual canonical books on index funds and efficient markets it's easy to remember the takeaway that nobody knows whether the market will go up or down, and yes you won't successfully time the market. But what you can do successfully is use an investment discipline with risk control: assume that the market will fluctuate, that both up and down are likely and possible, and optimize for predictability in light of that. Most importantly, optimize to take your emotions and behavior out of the picture. Some disciplines for example are: there are dozens out there, many of them snake oil, I think these I mentioned are valid. Anyway, you need some form of risk control, and putting all your money in stocks at once doesn't give you a lot of risk control. There's no real need to get creative. A balanced fund that uses index funds for equity and bond portions is a great choice."

negative: Do You Consult Or Just Do The Job?…..   For as long as I can remember I have always sought out information, knowledge, facts, figures.  One of my ex-bosses once said to me that I could always be relied on to find untapped resources & deliver.  This was when I was in my early 20′s & its a skill that I feel is vital for the success of any business.  My second job, when I was 19yrs old was in an Advertising / PR company - I was the Secretary.  Part of my remit was credit control & book-keeping, for some reason I was always naturally interested in sales units sold & values – then see how the total sales compared to the previous month / year.  Little did I know, this was a good skill for Profit & Loss sheets in years to come!

negative: "Sorry but you already provided the answer to your own question.  The simple answer is to 'not day trade' but hold things for a longer period and don't trade a large number of different stocks every week. Seriously, have a look at the rules and see what it implies.. an average of 20 buys and sells of longer term positions PER DAY is a pretty fair bit of trading, that's really churning through the positions compared to someone who might establish positions with say 25 well picked stocks and might change even 5 of those a week to a different stock.  Or even a larger number of stocks but seeking to hold them for over a year so you get taxed at the long term cap gains rate. If you want to day trade, be prepared to be labeled as such and deal with your broker on that basis.  Not like they will hate you given all the fees you are likely to rack up.  And the government will love you also, since you'll be paying short term gains taxes.  (and trust me, us bogelheads appreciate the liquidity the speculative and short term folks bring to the market.) In terms of how it would impact you, Expect to be required to have a fairly substantial balance ($25K) if you are maintaining a margin account. I'd suggest reading this thread My account's been labeled as ""day trader"" and I got a big margin call. What should I do? What trades can I place in the blocked period?"

negative: "And? What's the big deal? For the people who are upset about Netflix not having the Star Wars content, those are more than likely big fans of Star Wars, and said fans, if they consider themselves to big a big Star Wars fan, already own the old and most recent Star Wars movies. Watch, people are going to down vote my post, and it will be from those will most likely are a fan but don't own a copy of the movies or will say, ""Why should I have to buy them in order to watch them? I should be able to stream them whenever I want."" Think of the price of buying the movie, let's say $20. You can watch it over and over again. With watching it via stream, you'll have to pay between $15-$20 a month in order to watch it."