Online Tax Preparation – Speed and Efficiency in One

Slowly, but surely, more and more people are starting to switch from the traditional methods of doing taxes to doing taxes online. In some ways, it really is no surprise; it is a quicker, more efficient, cheaper and saves a lot of time. Since it is still a fairly new technology however to go online and do taxes for the IRS via e-filing, people are still at times a tad hesitant to make the switch. Once they make the switch however: they never wish to go to the old fashioned way of doing it.

Online tax preparation is a very quick and efficient method of doing taxes. The e-filed tax forms are received by the IRS much quicker than forms done by hand. There is no need to scramble through various forms; they are all online and easy to select. This makes it so simple, much more efficient and is a much quicker process as a result saving people time and money. The only thing that stays the same is how long it takes for the IRS to get the refund back to the people because they still need to check one by one that all the information is correct. The IRS wants to make sure it gets the right amount of payment.

Online preparation is much cheaper. Normally to go to a tax professional would cost about $100 to prepare taxes. If done online however the tax preparation process is much cheaper than before: usually about $15 and there still are many tax professionals depending which software or website you choose to go to for doing your taxes that can address any concerns that you may have. This way, your taxes can be done in a cheap and efficient manner while being accurate.

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Pros and Cons of Investing in Real Estate – Make Money For Secured Future

Life itself is not a one way track. Ups and downs are two essential phases of life. It would be foolish to expect any business with-out its pros and cons. The only thing that matter is the risk percentage. There are very few options such as IRA, Roth IRA and bank fixed deposits, you can invest in without a sense of risk. Like any other business or investment product with promise of higher returns, real estate investment too has its share of risk factor. Let us discuss the pros and cons of investing in real estate in detail.

The very basic aim to make investment is to see your wealth growing with minimum of risks and to secure your future after retirement life. Land and housing is one sector where you can invest your wealth with the minimum of risk but lot of prospects.

While discussing about the pros and cons of investing in real estate, let us first take a look on pros of real estate investments.

The very 1st, advantage of investing in real estate is the tax benefits that you can avail. Interest paid towards mortgage, property maintenance expenses, operating expenses like property agent’s service charges etc are adjustable from your tax liability. You can also avail the long term capital gain by keeping the property with you for longer period of time.

When you invest in Wall Street with individual securities or mutual funds, what remains with you is just a piece of paper with promises but with investment in real estate a non movable property remains with you. It gives you confidence and makes you the owner of a property physically under your direct control. You can rent your property to gain regular rent income or you can put your property on sale any time you wish to liquidate your investments with price appreciations.

In case you don’t want to involve yourself in day to day dealing with rental business, you may avail the services of professional agents and can make yourself free to enjoy your retired life with peace. Properties are the second commodity after gold which has shown steady growth for decades. Investment value in property appreciates with much more higher rates than any other investment.

Over and above all these positive factors, you become your own boss and need not depend on others to take decisions. That saves your lot of time as you can take right decision at right time.

First part of the subject “pros and cons of investing in real estate” has already been discussed above; Now let us go through the cons of the real estate investment business.

Like any other business the real estate investment business also has its share of cons. Despite of all above positive factors, there are always possibilities of various draw backs. There are thousands reasons that the value of a property may go down. The value of property depends upon the locality and location of the property. The hot location of today may become discarded tomorrow because of bad elements in neighborhood or due to a new legislation by the local government or because of sudden lack of civil amenities by local municipal corporations.

You may be unlucky to have not so good a tenant to your property. Tenants always want much more than the worth they pay as rent. You may have to spend more on maintenance and repairs than what you planned. Natural calamity can put you in unexpected high expenses to keep your property in good condition. Also the market can take an unexpected downward trend and put you in loss.

Though there are possibilities of unforeseen circumstances which can convert your well thought and planned investment proposition in to a loss, but still the real estate investment is one of the best investment one can think of.

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The Importance of Design and Marketing in the Investment Business – Part 1

Marketing and finance are the cornerstones of a successful business. You might protest and say that, first, you need a good product, but there are countless examples of products that were successful, solely, from marketing, like the pet rock, in the 1970’s. Moreover, marketing is not only the collaborator of finance but is also finance’s coconspirator. Indeed, marketing is more important to the financial industry than finance, itself, something that people outside of the financial industry fail to grasp.

Perception is more important that reality, for what we perceive is real to us. In that regard, from the very bottom of the financial system, money and banks, there is a need to shape perception. Paper money was developed by Italian goldsmiths, in the Middle Ages (actually, China experimented with it as early as circa 900 A.D., but the experiment failed). As gold was, then, the major medium of exchange, people would sometimes need a place for safekeeping, and the goldsmiths kept it for them, in their vaults. In return, gold receipts were issued, and those became accepted as legal tender. Moreover, those same Italian goldsmiths became the first banks and the precursors of modern banking, so-called fractional reserve banking. They discovered that, as keepers of gold and issuers of gold receipts, they always had more gold in their vaults than was needed to redeem receipts to those looking to make withdrawals. Given that, they mad loans by writing more receipts for more gold than they have in their vaults, and that is the essence of modern fractional reserve banking.

In modern banks, most of the money that is deposited is in demand accounts, from which money can be withdrawn at any time. Demand accounts and other restricted savings accounts are on the liability side of the banks’ balance sheets. Then, banks make loans by making book entries into accounts for people borrowing money, and money is created, in the system. Moreover, there is a mismatch in the maturity structure of the assets and liabilities, in that deposit can be withdrawn, almost anytime, while loans, the assets, usually have longer-term maturities. In order to keep this house of cards from crashing down, confidence must be engendered in the depositors, which is tantamount to shaping perception, which is what marketing is. When people lose confidence in a bank, and panic causes a so-called run on the bank, whereby all or a large number of the depositors, all at once, demand that the bank return their money, it can result in bank failure because no fractional-reserve bank could fill all of its depositors’ requests, at once, since, in the normal course of the fractional reserve banking business, banks do not keep a reserve equal to one hundred percent of deposits.

Design also enters the picture, in finance, even at this basic level of banks. Banks offer a safe place to keep your excess cash and to get it out on demand. What actually underlies most banking products are put and call options of one sort or another. For example, you can get the convenience of checking with no interest: you pay for the right of on demand withdrawal with a payment order, checks, by giving up interest. You might be able to get interest on checking by maintaining a minimum balance: by giving up some rights to demand money. For a bit more inconvenience of having to physically withdraw funds, you get a little interest on passbook savings. You have traded the right to payment order banking for a small amount of interest. In both cases, you have, effectively, purchased an option, in the language of finance, to “call” away the funds from the bank, and the cost of the call option manifests itself as lower or no interest. You can receive more interest by promising to keep the funds invested for a longer time. Thus, you give up your right to call away the funds at the beginning of the transaction, but you can repurchase the right, in the future, at a hefty price. This is all financial package design. Marketable CD’s (certificates of deposit) take the design one step further, assuring the bank that the CD cannot be handed in for early redemption, which can be done with a penalty for a nonmarketable CD. Instead, the original buyer has the option of early liquidation by selling it in the financial markets to another investor. These designs offer higher interest or re-salability, in order to induce people to agree to lock up funds for a longer period of time. On the other hand, on the asset side of banking, collateralized loans are the combination of a plain loan with an option to the lending institution to call away the assets from the borrower; alternatively, an option to the borrower to “put” (transfer ownership or sell) the assets to the bank. The effective packaging of loan with option, in that case, results in a lower interest rate. In a loan with an early payment option the borrower, effectively, sold debt to the bank and purchased a call option on the debt, thus, increasing his cost. A loan commitment from a bank to a potential borrower is an option to put debt to the bank at a specified interest rate. Interest rate quotes, themselves, have an element of deign: quotes are usually given as annual percentage returns (APR’s), even though they may be compounded more than once years, instead of being given as the actual effective annual returns that result from multiple compounding.

In the language of the new behavioral finance, we refer to such packaging and design as framing. Framing has to do with how something is presented. For example, a doctor could tell you that you need an operation but that 10 percent of the people who have the operation die. That is one way to frame it, but it, certainly, does not sound very reassuring. However, if the doctor says, instead, that 90 percent of the people who have the operation survive, it sounds much more appealing. A fund manager might say that your portfolio outperformed the market, rather than saying that the market lost 20 percent, while your portfolio lost only 15 percent. Research shows that framing has an inordinate affect on the decision process. The end result is that people are easily fooled, and the finance industry is aware of these facts.

At the next level of the financial industry, stock and bond brokerage houses, marketing and design play an even larger role than at banks. First of all, brokers are just salesmen. Although they might call you and tell you about a hot tip, most of them have no real financial training, and their job is to generate buy and sell orders from customers, which give the firm riskless commission dollars. The same is true for institutional salesmen, but at least they are called salesmen. What might surprise you is that even the analysts at securities firms are, normally, in the institutional sales department, and many of them do no real analysis. A number of them just hug the benchmarks created by consensus of other analysts of the same stocks that they cover. Summaries of analysts estimates are compiled by several services and most analysts do not want to go out on a limb and get too far away from the consensus. It is a matter of safety in numbers. In the end, their job is to write research reports, to give oral reports, and to talk to clients, in order to generate commission dollars. I speak of these things, not from what I have read, but from experience: my first job on Wall Street was as an analyst, and I am familiar with what most analysts do. In the end, much effort, many people, and an abundance of job titles are dedicated to marketing and sales, in the securities industry.

Although stocks and bonds are not the only investments marketed by brokerage houses, it will be instructive to take time to look at the design elements that go into these basic securities. Corporations, their investment bankers, and lawyers continually engage in design of securities, in a number of ways, some subtle and some not so subtle. First, the price per share is considered, by most companies, to be an important design feature of a stock. The reason for that is that normal lots of stock, traded on exchanges, in the U.S. (it may vary for other countries), are multiples of 100 shares. Thus, if a stock is priced in the market at, for example, $25, the smallest normal lot will cost $2,500. If the stock price were, instead, $500, the price per 100-share lot would be $50,000, which is a large amount of money for the average person to put into one stock investment. As a result, companies will do share spits when the price rises above a certain level, in order to make one-lot purchases accessible to a wider investing audience: it is pure design. Another feature that companies may look to design is dividends. Retirees, for example, gravitate towards high dividend yield stocks, and some companies might design their dividends, in order to attract retirees, who are also more likely to hold on to their investments and to align their voting with management. People, in the middle of their lives, are more apt to buy shares of stock of companies that they believe will have potential for capital appreciation, which are usually also companies that retain and reinvest their earnings and pay little or no dividends. In financial theory, this is known as the clientele effect, and companies are aware of it. Moreover, companies are also aware that investors take signals, rightly or wrongly, from changes in dividends, and they are careful, even, at longer term planning of dividend distributions and the growth, thereof.

Bonds, too, have taken on new design features, over the years. From plain old bonds, we have gone to convertible bonds, which are convertible, under certain circumstances, during specified periods, and at a given price, into shares of common stock. Other features that have been designed into bonds are callability and putability, allowing the company to refund early or the holder to ask for refund early, respectively. The latest design feature is infinite life, making perpetual bonds that have a quality of stock, which is also, theoretically, infinite, in life, but which have tax status of debt. The various design features are meant to attract a certain class of buyers and are usually also combined with interest rate differentials from ordinary bonds. These designs can be looked at as packages of ordinary no-frills bonds with put and call options on either the debt or the company’s equity, in the case of convertibles.

It will be useful, at this point in the discussion, to introduce the concepts of replication or financial engineering. Replication looks at a security design, in terms of other basic securities. It is, really, just a more pretentious name for the concept of framing. Indeed, in our discussion of loan and deposit designs for banks, we were, basically, discussion replication, which can also be described as packaging without the mention of packaging: implicit packaging. It all began when Black and Sholes were looking for a means of coming up with a formula to value put and call options on American stocks.

To fill in some of the gaps, let us begin with the concept of another financial product: forward contracts. Forward contracts, called futures, if they are exchange-traded, were the first so-called derivative. A derivative contract or product is one whose price depends on the price of other underlying objects. In order to hedge risk of price changes, in various commodities, including, but not limited to, grain, metals, currencies, and stock markets, forward contracts were originated in the OTC (over the counter) markets, which just means between individuals, rather than through a formal trading exchange. In that regard, if you are a farmer who has planted corn, you know when it will be ready for harvest, you know how much you should have, but you do not have buyers, and the price might vary between the time that you plant and harvest. Therefore, you might search out potential buyers, like corn millers, who are also looking to lock in future supplies for their mills. You enter into a contract for future delivery of a certain amount of corn at a specified price at a certain future date, a forward contract for the purchase and sale of corn, and both parties have eliminated price risk. However, the contract is inflexible: both parties have eliminated risk, but neither can benefit, if the spot price turns out to be very different than the contract price when the future arrives.

The valuation of a forward contract is fairly straightforward: it is a matter of framing. The buyer of the forward could buy the underlying commodity, now, but he sacrifices the opportunity of putting his money into riskless investment and earning interest during the intervening period. Thus, the seller of the contract will be satisfied, if he gets the current spot price plus the interest that the buyer can earn by keeping his money until the contract must be fulfilled. Reframed, long a forward contract is equivalent to short the future value of the spot price, based in the current riskless interest rate. In order to further convince you that this is, indeed, the proper frame for pricing a forward contract, consider a position of long the physical commodity and short a forward contract, symbolically, C – F, where C is the commodity, and F is the forward contract, the negative sign denoting short. Since this is, now a totally riskless position, it should earn a riskless rate of return, or C – F = M, where M denotes a riskless money market investment with term to maturity equal to the time to delivery on the forward. Rearranging the symbolic equation, we get: F = C – M, which is equivalent to another frame: a leveraged position in the commodity, in which one borrows, unrealistically, the whole cost of the long commodity position. Also, in this manner, we have illuminated the previously obscured frame that shows that a forward contract is simply a package of a one hundred percent leveraged long commodity position. Alternatively, we could say that we can replicate a forward contract by buying a long position and fully leveraging it.

As the financial markets noticed a need, they designed a new product, options, in response to the inflexibility of forward contracts. As mentioned, in the previous paragraph, forward contracts take away all of the risk but leave no possibility to benefit, if prices move in a direction that would offer added benefit. For example, the farmer sells his wheat forward, in order to avoid the possibility that wheat prices will fall before he can harvest his wheat. However, he may feel stupid, if the price actually rise, substantially, over the intervening period. Thus, from the OTC markets there arose a new product: options. Options are flexible contracts, and in making a flexible contract, the concept of forward had to be split into a duality: puts and calls. A call option is an option to buy a certain underlying object at a specified price at a certain future date, but there is no obligation to exercise that right. In that regard, if you buy a $50-strike-price call option on ABC stock, and the price moves above the strike price, you will exercise the option, buy the stock at $50, sell it in the market, and make a profit. On the other hand, if the price ends up below the strike price at expiration of the contract, you will not exercise, and you will only lose the money that you paid, initially, for the option. Thus, you can benefit, if the price rises, but you lose only a little, if the price drops: you have limited downside risk and unlimited upside potential. Put options give the buyer the right but not the obligation to sell the underlying object at a specified price by a certain date. Accordingly, you will buy a put to protect yourself or to benefit from a drop in prices, but, if the price goes up, you will only lose the price paid for the contract. In addition, given the dual nature of options, one needs to hedge a position in the underlying by using both. In terms of an abstract symbolic equation, for options on stock, S, the equation for a hedged position is: S – C + P = M, or: long stock, short call, and long put will give you a riskless money market return, M.

As we have described, in some of our preceding discussions, there are a number of financial products, designed by banks and corporations, which are simply obscurely framed packages of more common products and options. When Black and Sholes came up with their options valuation formula, in the mid-1970’s, they did two things. First, assuming, unrealistically, that financial objects represent fair games and are governed by normal distributions, which came from John Von Neumann’s rational-based economic theories, they, with the aid of the physics department at M. I.T., developed a mathematical formula for option valuation. However, it was the other thing that they did, which is much more important: they framed options in terms of the underlying financial instrument and riskless return. That was the beginning of financial engineering, which is better described as frame-obscured financial product design. In the longer run, their mathematical formula has proven to have big problems, especially after the 1987 market crash, which could only have happened once in several billion years, if financial objects were really governed by normal distributions. Their use of frames to describe objects, in terms of other objects, has lead to the explosion in development of frame-obscured financial products over the past few decades, which has also been responsible for our current financial crisis.

The creativity of finance can produce good and bad products. For example, it is observed that the spread between fixed and variable interest rates is higher for blue-chip borrowers than it is for poor credit risks. From this simple situation, which can be reframed as comparative advantage in the markets for debt, arose the interest rate swap, a derivative product involving two assets, not just one. The poor credit person would prefer to borrow at a fixed rate since he is already having trouble with his finances. The better borrower might, for one reason or another, prefer a variable rate loan. In a swap, the poor credit risk borrows in the market where he has comparative advantage: the variable rate market. The better borrower borrows in the fixed rate market, and they swap their interest rate payments on the same amount of principal with an adjustment for risk. The result is that, just like in international economic theory, the two split their comparative advantages, both end up transformed to the markets that they prefer, and both pay lower interest than they would have on their own.

A major theme in the financial business over the last several decades has been, on the one hand, to make new frame-obscured packaged products, and, on the other hand, to bring their massive sales and marketing forces to bear on a growing investing public. People, in general, only became interested in investments, beyond bank accounts, beginning in the 1980’s, first, after rampant inflation, in the late 1970’s, showed them that bank accounts did little to overcome inflation, and, second, after competition, finally, reduced commissions to affordable levels, in the retail securities brokerage business. Thereafter, on-line order entry from personal computers, in the 1990’s, brought even more self-styled investors into the fray. In addition, message boards and on-line “trading systems” allowed even more people to convince themselves that investing can be done by anyone. As a result of those things, a person did not even have to pick up the phone to call a broker for tips and orders. Instead, they could use trading systems, the bases of which they had no knowledge, and listen to people on message boards, even though they no knowing of their credentials. Indeed, we have observed bubbles, in the U.S. markets, in the late 1990’s, and, in China, in the middle of the first decade of the new millennium, that, as far as we can see, were the results of this new mass-whispering, cereal-box-expert trading phenomenon. This new breed of wildcat investor, having no formal education in investment or experience in the profession of investing, is especially ravenous for and opens to newly designed investment venues. In this new era of do-it-yourself investment by self-styled investors, the marketing departments of financial institutions are having a field day, and there has been an explosion of new financial products, over the last few decades.

Financial products can come from needs, as creative solutions to problems, or to take advantage of know preferences and other psychological factors. The next product design that we will discuss may seem surprising: the money market account. Technically, money market accounts are mutual funds and because people are depositing, buying shares, and withdrawing, selling shares, all the time, the fund would have to be in continuous registration, according to the rules for such mutual funds, and issue and refund shares of the fund. However, the securities industry lobbied long and hard to get the government to agree to allow money market funds to have the appearance of demand accounts at banks, and, today, most of us would never even think that they were anything more, nor would we be aware of the battle that went on behind the scenes to make us think, in terms of this frame.

That brings us to the doorstep of our next example of design based on observed behavior of investors. A casebook example of security design based on information about this new breed of investor was the LYON designed by Merrill Lynch, in the 1980’s. What led to the design of these securities was an observation by a member of the firm. The head of the money market department at Merrill noticed that many of the customers who had money market accounts used the earnings from those accounts to dabble in stock options. As a response to that knowledge, Merrill designed, LYONs, liquid yield option notes, which were zero-coupon, convertible, callable, and putable bonds. They were specifically designed to have the appearance of the safety of a money market account, while offering the upside potential of options. By the early 1990’s, investors in LYONs had a rude awakening as interest rates fell, and the bonds were called by the issuer.

These small examples, not only show us the behind the scenes research that goes into design, but also point out how framing is used to focus investors on certain aspects of an investment, knowing that they will ignore others. The “second rule of people” that I teach to my protege and to my assistants is that people are not as smart as you think they are. They do not look at all of the facts or signals that should be apparent, and they do not connect all of the facts that they see. It is the essence of what is being discovered, in studies, in the in the new behavioral finance. We shall take that up in part 2 of the article.

© 2009 Craig Mattoli, CEO, Red Hill Capital Corporation, Delaware, USA, owner, Leona Craig Art, Guangzhou, China: all worldwide rights reserved.

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Defaulted Student Loan Help and Debt Relief Program

As a borrower of the loan, you have some responsibilities. Basically all the borrowers should follow some basic things while applying for a loan. You must read all the terms and conditions of the loan; you must understand the agreement properly. If there is anything that you do not understand or you are doubtful about, you should ask the lender to clarify it.

Whether it is the loan or a radio subscription, you have to understand the clause properly. No debt should be taken lightly; any default loan is a derogatory entry on your credit score and will hurt your credit worthiness. Defaulted loan is a serious thing. You have to try hard to avoid being default on your study loan, and if you cannot avoid, look for defaulted student loan help before it is too late. Defaulted student loan has many complications; it is definitely not good for your credit. Apart from that it has some other consequences also. You have to know what can happen if you default on your the loan. Let’s see.

What happens when you default on your student loan?

The first thing that will happen once you miss your payment is your phone will start ringing almost all the day. Collection calls will start instantly; the collection agents will start searching you like anything. Collection agencies are hired to chase the borrowers when they fall behind their student loan. You have to seek help to stop the collection calls.

Loans, whether disbursed by the Government or any lending institute, are usually collected by third party collection agencies hired by the lender. The collection agencies call default borrowers, threat them and make their life miserable to collect the loan. Usually collection agencies get a fair share of the amount they collect from the defaulted borrowers. When you fall behind your the loan, the collection agencies call the references the details of whom you provided in the loan application. They start disturbing them to create pressure on you. By any means they try to get the loan amount paid. They will call your family members; they will try to trace you in case you do not pick up the call or try to avoid them.

If you are employed and have a steady income, the lender may file you a lawsuit but chances are high that the case would go in their favor as your debt is valid and you have an income. Sometimes people think that federal the loan would just go off their credit history with time; they do not need any defaulted student loan help.. This is not right; federal loans do not have any SOL, i.e., statute of limitation. You have to pay off the debt; there is just no way out.You have to look for debt relief programs made for the loan borrowers. Work with a debt eliminator that helps you consolidate or settle student loans. Search for defaulted student loan help in your city and get out of all your financial worries.

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