Personal Finance 2023 ALL --EXCLUDING ETFs/MFs and IRAs/401ks

Average American Income tax

22%

Max Income tax bracket

37%

Average California Income Tax Bracket

10.23%

Total Social Security Payroll Percentage

12.4%

Employee Social Security Contribution Percentage

6.2%

Total Medicare Payroll Contribution (employer and employee or a self employed person/owner of their own business)

2.9%

Employee Medicare Payroll Contribution

1.45% (the employer pays the other 1.45% for a total of 2.9%)

Capital Gains Tax Percentage(1+year)

15%

Capital Gains Tax Percentage (<1year)

One's Marginal Tax Bracket (the average American is in the 22% tax bracket)

Dividends Tax Percentage

15%

2023 Corporate Tax Rate

21%

2023 Average American Income

$59,428

Tax Day

April 15

2023 Average Social Security Monthly Benefit

$1,705

2023 Maximum Social Security Monthly

$3,627

Short Term Time Horizon

0-5 years

Medium Term Time Horizon

5-10 years

Long Term Time Horizons

10+ years

Percent Change Formula

New-Old/Old x 100

What does the SEC stand for?

Securities and Exchange Commission

What investments are subject to the capital gains tax

Sale of Stocks, primary house, and business

3 Things that work against your investing future

Taxes, Fees, and Inflation

Rule of 70 Formula (Doubling Time)

70/% rate x 100

What does FDIC stand for and up to how much do they insure per bank?

Federal Deposit Insurance Corporation insuring up to $250,000

Historically how much do Savings Account yield?

2%

Historically how much do Certificates of Deposit (CD's) yield?

4-5%

Historically how much do Money Market's yield?

4.5 - 6%

Define Liquidity

How quickly an investment can be converted to cash

How are savings accounts, CDs, money markets, and bonds taxed?

All taxed by income tax

Who owns corporations?

The shareholders

What are the 2 stock markets in the US?

New York Stock Exchange (NYSE)

NASDAQ

Which stock Index measures the 30 largest US companies?

Dow Jones Industrial Average (DJIA)

Which stock index measures the 500 largest US companies?

Standard and Poors (S&P 500)

Which stock index measures many small cap stocks?

Russell 2000

Which Stock index consists of all US based companies listed on both stock markets?

Total Stock Market Index

Formula for market capitalization (cap)

Share price x number of shares

Define stock buyback

A company goes into the stock market and buys back its own stocks; share prices go up

Define Stock options

A company allows its employees to buy its stocks at a discounted price; exercising options is when you can sell the stock options.

Define Stock bonuses

A company gives shares of stocks to its employees rather than cash as a bonus

Define stock split

If 2-for-1 split, the number of shares doubles but share price is cut in half

Define blue chip stocks

Large cap, household name companies. All 30 Dow Jones Industrial Average (DJIA) stocks

3 ways to make money in the Stock Market

1. Buy Low, sell high

2. Dividends

3. Sell Short (then short cover to finish)

Define Dividends

Cash payments to shareholders just for owning stock

When are dividends paid?

Paid quarterly and paid out of a company's after-tax profits.

What does DRIP stand for?

Dividend Reinvestment Program

Dividend Yield Formula

Dollar amount of dividend divided by share price x 100 ($ Dividend/share price x 100)

Bull Market

Market is booming (going up)

Bear Market

Market goes down at least 20%

Market Correction

Market goes down at least 10%

Define Dollar Cost Averaging

the practice of systematically investing equal amounts, spaced out over regular intervals, regardless of price. You'll get more shares at lower prices and fewer shares at higher prices thus averaging out.

Therefore, don't try to time the market. Just keep buying over years regardless of whether the market is up or down. "Time in the market is more important than timing the market."

Define Recession

6 straight months (2 quarters) or longer of economic contraction; economy actually sinks; negative growth

Define Cyclical stocks and give an example

Stocks that go up during the ups of a business cycle and down during the downturns. (Honda, Apple, Boeing)

Define Defensive stocks and give an example

AKA counter-cyclical stocks, goes up during the downturns and down during the upturns in the market. (Netflix, McDonalds, AT&T)

Define Growth stocks and give an example

stocks that grow faster than the market average, very volatile. (Tesla, Amazon, AMD)

Define Value stocks and give an example

Stocks that have been oversold as their prices have been beat down. Tend to be quality companies going through a rough patch. (Procter & Gamble, Johnson & Johnson, Colgate-Palmolive)

Earnings Per Share

How much a company earns divided by the number of shares. Calculated 1 time per year.

Price Earnings Ratio (P/E)

Measures the valuation of a stock

<14-15 Undervalued

=14-15 Fairly valued

>14-15 Overvalued

Trailing P/E

A company's Price to Earnings Ratio using the past 12 months earnings per share. (TTM = trailing twelve months)

Forward P/E

Today's share price divided by next year's PROJECTED earnings per share.

If a company's forward P/E is lower than the company's trailing P/E is that good?

Yes, a lower forward P/E can only occur if there are higher projected earnings per share next year. That's good.

PEG ratio:

a ratio that divides the P/E ratio by the Growth Rate of the company.

PEG ratio of 1 means a fairly valued stock

PEG less than 1: Undervalued

PEG greater than 1: Overvalued especially above 1.50

Beta

Measures a company's share price volatility

Beta of 1: the company's share price typically changes in line with the broader market (S&P 500)

Beta less than 1: share price is less volatile than the broader market (S&P 500) (if the market is up 1%, low betas should be up by less than that).

Beta greater than 1: signal more share price volatility leading to higher highs in up market and lower lows in down market.

Debt-to-Asset Ratio

Debt/Assets: divide a company's debt to its assets

>1: company has been financed primarily by debt

Investors prefer less debt-asset ratios

What type of bond is tax free?

Municipal Bonds (Muni's)

Why do governments and corporations issue bonds?

Governments issue bonds to finance budget deficits.

Corporations issue bonds to finance growth and expansion.

Synonyms for corporate bonds

Corporate paper, corporate debt

Formula for bond yield

amount a bond pays/price one pays for the bond x 100

Secondary Market

Where already issued bonds are bought/sold

Highest rated type of bond

AAA bonds

Worst rated or lowest rated type of bond

High Yield bonds or Junk Bonds

Bond Prices and Yields

Inverse relationship between bond prices and bond yields. It doesn't matter what changes first: bond prices or bond yields

↑bond prices→↓Bond yields

↓bond prices→↑Bond yields

↑bond yields→↓Bond prices

↓bond yields→↑Bond prices

With Demand changes first:

↑ Demand→↑Price of bonds→↓Bond Yields

↓Demand→↓Price of bonds→↑Bond Yields

Define Leverage or leveraging

debt or borrowing. "a leveraged buyout."

Define deleveraging

Paying down debt "That company is deleveraging."

How long does it take for Treasury Bills (T-Bills) to mature or expire?

Up to 1 year

How long does it take for treasury notes to mature?

1-10 years

How long does it take for treasury bonds to mature?

10+ years

How long does on average it take for a market to bounce back after a crash?

3.5 years

What is the "Business Equation"

Revenue - Expenditure = Profit

How do you calculate a company's Revenue?

Price X Quantity Sold

What is the single biggest cost of running a business and how much?

Labor is 70-75% of the cost of running a business

In order, what are the most liquid to least liquid accounts are at the local bank.

1. Savings/checking accounts (ATM/Debit cards)

2. Money markets (access to your money with some limitations. No ATM/Debit card).

3. CDs (time deposits. Y90%+ of people don't break their contract early. You'd have to do this to get access to your money).

Why do investors buy bonds?

investors to buy bonds to earn a fixed income. Fixed interest rates.