Month: December 2016

Categories
Financial

3 Reasons To Invest In Bitcoin and 3 Reasons Not To

Bitcoin has attracted a lot of buzz in the media recently. It’s a computer-based currency that governments can’t trace, which has some people very interested. Bitcoin is a brand new kind of medium of exchange, and most people don’t know whether it is worth investment or not. Here’s a list of some pros and cons of this crypto-currency to get you thinking:

Invest In Bitcoin Because Of Its Independence

Bitcoin exists outside of national governments. That means that no government can track it, issue it, rescind it, stockpile it, or control it. That can be helpful for a number of reasons. For example, some people live in areas with unstable governments, or where the government controls the local currency and makes it hard to buy outside goods. Bitcoin isn’t subject to the vagaries of government policy.

Because It Grows In Value

Bitcoin’s value in dollars has climbed as interest in the currency grew over time. More interest translates into more demand, which increases the price of a Bitcoin. That means that aside from its other features, Bitcoin has become an asset for investment like any other- buyers can hold onto it and hope that it will be worth more than when they bought in. It has risk like any other asset, but it might just be worth some money to see if it really takes off.

Because It Might Be The Future

There’s a chance, however small, that Bitcoin becomes the way people do business: Bitcoin might replace other currencies in all transactions. If that happens, it would certainly be better to be holding Bitcoins rather than dollars or euros. Again, this is by no means guaranteed, but Bitcoin does hold the potential to change the way people buy and sell. If it transforms the financial landscape, it will be a very nice thing to own.

Don’t Invest In Bitcoin Because It Is Unstable

Without any backing or government support, the value of Bitcoin can fluctuate wildly based on rumors, big purchases, and other issues. Having a currency that is just as volatile as a stock is a recipe for confusion. Why get into something when you have no idea how much it will be worth in a month? It might double in value or crash to zero. At least with stocks, you can spread out the risk and diversify.

Because It Is Unsafe

Bitcoin, and the exchanges on which people trade it, periodically undergo more or less successful hacking attempts. The exchanges also occasionally shut down, leaving all participants without their money. You are never quite sure if your Bitcoins are safe, or that nobody has found a clever way to duplicate them. The more interest they attract, the more they will be the target of fraud.

Because It Is Not Real

Bitcoin does not represent a real-life asset. Having a Bitcoin worth $250 does not make you $250 richer until you manage to find a person willing to give you $250 for your Bitcoin. You cannot trade it in for a stock, a metal, or anything else. It has no value aside from market whims.

Remember that all investments have risk, and also that with risk comes reward. Choose for yourself: it’s certainly an exciting time!

Categories
Misc.

6 DIY Projects Better Left To Experienced Pros

Entire cable stations devoted to the do-it-yourself lifestyle have empowered homeowners to try their hand at becoming a contracting pro. This zeal to become the next Bob Vila has led to disastrous home additions, unsafe buildings, and homeowners with big bills and unfinished projects. Some projects are the perfect venue for the DIY culture. Other projects should be left to contractors and construction pros.

diy couple

1. Home additions and structural work: Erecting solid walls isn’t the only project required for a new addition. A homeowner must also deal with laying the foundation, getting the electrical system right, and even installing the plumbing. The number of responsibilities for a DIY home addition are too great to list and beyond the scope of the average homeowner’s skill set.

2. Replacing the plumbing: Old homes usually need new plumbing systems and new homes occasionally suffer from a burst pipe or a mysterious leak. Replacing one of the pipes under the sink is an appropriate DIY project. Replacing all the pipes in the wall of the bathroom is definitely something to leave to the professionals. What a hassle it would be to handle a giant repair job and close up the wall, only to find that a leak remains.

3. Security systems and alarm installation: Store-bought home security equipment might be easy to install, but it’s not going to be monitored and there’s no guarantee that the devices will keep thieves and criminals out of the home. If a homeowner chooses it, a professional system offers active monitoring as well as a system where everything is connected and part of a live barrier of security protection.

4. Repair or replacement of the electrical system: New wiring of any kind tends to be a project best left to someone who has experience with the complexities of home wiring schemes. Major rewiring requires observance of city building codes, and a homeowner won’t know these specifics. Additionally, improper installation of electrical wires could create a fire hazard in the home. Old wires are dangerous, but improperly installed wires are just as much of a danger to families.

5. Paving the driveway: Whether a homeowner chooses beautiful paving stones or a traditional slab of concrete, the art of a smooth driveway is a project that could take a homeowner months. Paving crews take no more than a few hours to complete the entire job and a homeowner won’t have to live without a driveway for months and months until the last paving stone is in place. A DIY driveway is an excruciatingly long project, even if a homeowner manages to get the job done without error.

6. Knocking walls down: The idea of an “open concept” floor plan is a popular topic in real estate and home improvement conversations, but this project could lead to disaster and a destabilizing of the entire structure of the home. A house is built with important beams and supports that must not be moved or cut. Doing so means that the house could collapse without warning.

Don’t destroy a dream home by starting projects that are too complex and which require professional experience to complete. Homes today have many safety codes and regulations that must be followed, and a DIY homeowner could get in trouble by trying to take on a project that’s too complex and dangerous.

Categories
Financial

What Are Derivatives and Why Is Wall Street Rolling the Dice Again?

Wall Street seems to be tossing around the word, “derivative” a lot lately. What are derivatives and why is Wall Street so obsessed with them?
What is a Derivative?

A derivative is a financial investment that receives its value based on some event occurring. A good comparison is a sport’s gambling bet paying you if your team scores the first touchdown. Futures, forwards and swaps are all examples of financial derivatives.
Why Does Wall Street Use Derivatives?

Why do you purchase insurance or wear a seat belt? You take actions to hedge against a potential danger that may or may not occur. Actuaries can estimate the chances of an event occurring based on historical data. Derivatives are risk management.
Concrete Derivatives Example

While many homeowners might consider an adjustable rate mortgage (ARM) because it is more affordable, they also might want to hedge their bet. If interest rates increase dramatically, then their monthly payment will also.

Investors purchase Interest-Rate Swaps (IRS), which will pay them if interest rates reach a certain level. For example, if your ARM is 4% today, then you might be forced to pay $900 more each month if the rate increases to 5%. By purchasing an IRS derivative contract that pays you $1,000 if your ARM increases to 5%, you can offset the increase in your monthly mortgage payment with the money paid by the IRS contract.
Nothing was Fixed in 2008 Bailouts

The banking system has many secrets, one of which is that the 2008 bailouts did not fix any of the underlying problems with the Wall Street system. A few of the rotten apples were not removed from the barrel as one would expect, but instead merged with other barrels of apples. This has lead to healthy banks being weighed down by the same toxic derivatives that destroyed Lehman, Bear Stearns and AIG.

One bad apple spoils the bunch.

The truth is that the modern-day Wall Street bankers are not following the conservative rules of banking. When a bad bank goes under, the toxic assets should be written-off. The problem is that many of these banks hold the same toxic assets. The entire banking system is in jeopardy. They have created a house of cards built upon derivatives.
Pyramid of Derivatives

Here is an analogy to help you understand why Wall Street is rolling the dice again after the collapse in 2008. Let us say that your workplace has a refrigerator where everyone keeps their lunch. Well, one of the employees, we will call him Morgan is really lazy. Instead of buying his own lunch, he steals one of the lunches in the refrigerator and puts a paper IOU in place of it.

That is basically what the banking system did in 2008. It knew that the assets of Lehman, Bear and AIG were worthless (they used the term “toxic”); but instead of replacing those toxic assets with valuable assets, they simply wrote an IOU on the government balance sheet. Now, instead of valuable assets, the banking system is full of IOUs. So while some might wonder why Wall Street is rolling the dice again with toxic derivatives; perhaps, these IOUs are all that is left in the system.