Herman Ye

The Time Value of Money (TVM) is the benefit of receiving money now over receiving the same amount later. A dollar today is worth more than a dollar tomorrow.  This is because of money's potential. It can be invested in the stock market, earn interest in a savings account or used to start a business. The earlier you have money, the earlier you can take advantage of this potential. TVM Formula The TVM formula is a great tool to demonstrate this concept. Below are the variables behind TVM. FV = future value PV = present value r = rate of return n = # of compounding periods per year t = # of years The formula can be used to calculate  future value : FV = PV x [ 1 + (r / n) ] ^ (n x t) This formula can also be re-arranged to calculate  present value : PV = FV/[ 1 + (r / n) ] ^ (n x t) The TVM formula can be rearranged to calculate any of the above variables, but today we'll focus on present and future value. Let's take a l...

If you've procrastinated on investing and is now sitting on a big pile of cash, getting started can be pretty intimidating. What if the market tanks right after I invest all my money?  This is completely possible. If you invested in the S&P 500 in October 2007, at the peak price of $1,900 ( right before the financial crisis ), in less than 2 years, your investment would've collapsed to $900. Yikes. So what if I don't want to go all in?  Dollar-Cost Averaging (DCA) is a popular alternative to Lump-Sum investing. DCA is investing fixed amounts over a period of time. If you had $12,000, instead of investing all at once, you could invest $1,000 per month over the year. With DCA, you reduce the impact of dramatic declines. If the market crashes, you luckily only invested a small portion when the market was high, with money leftover to invest when the market is low. DCA allows you to buy less shares when markets are expensive and buy more when markets are che...

Last week, we talked about how ETFs are not breaking the market. Today, let's take a step back and discuss some ETF basics, like the players involved, how they're created and how pricing works. But first, what exactly is an ETF?

As passive investing becomes more popular, there's growing concern around indexing and its impact on the integrity of the stock market. Michael Burry, portrayed by Christian Bale in  The Big Short   for famously predicting the 2008 collapse , went as far as calling it a " bubble ". “This is very much like the bubble in synthetic asset-backed CDOs before the Great Financial Crisis in that price-setting in that market was not done by fundamental security-level analysis, but by massive capital flows based on Nobel-approved models of risk that proved to be untrue.” - Michael Burry These concerns stem from indexing's lack of price discovery. Unlike active trading which involves analysis, passive investing simply buys stocks relative to their size in an index. Trading sets prices, each trade is a vote for a stock's value. Critics fear that passively investing based on relative size will drive up the price of larger stocks and suppress the price of smaller stoc...