Investing in Commodities

In recent years we have seen the commodities market enjoy an impressive bull run. With a few exceptions, the prices of commodities have experienced major increases and generally outperformed other investment class. This trend has brought commodities under the focus of investors.

What are Commodities

Commodities are a broad category of raw materials used by industries and traded on specialist commodities markets that include

·         Energy – Includes natural gas and oil-related commodities

·         Industrial metals – Includes Copper, Zinc, Aluminum, lead, and Nickel

·         Precious metals – Gold and Silver

·         Agriculture – Includes cotton, wheat, soybeans, coffee, and sugar

·         Livestock – Includes cattle and hogs

Why should you invest in Commodities

Commodities are a source of inflation and hence they provide a strong hedge against it. Commodities provide benefits of risk diversification by adding them to a portfolio. Based on historical results, adding commodities to your portfolio will increase portfolio returns while lowering your risk. By adding a small percentage of commodities, say 6% can improve your overall portfolio performance and returns. Hence Commodities asset class has become an effective way of diversifying your portfolio. Investing directly in commodity producing assets gives linked returns with lower volatility and cash flow.

How to Invest in Commodities

Investors have a number of options available with them to investing money in some of the products they use daily such as food, oil and metals. There are number of ways available to invest in commodities: future market, which is used by speculators looking to make money on whether the price of a commodity will increase or decrease in the future. There are a small number of mutual funds and Exchange Traded Funds available for individual investors and for small institutions.

Risks in Commodities

Obviously, investing in Commodities is not without risks and it is not a typical for this asset class to under perform for an extended period. Commodity prices are very volatile and are affected by geopolitical risk, speculative risk and the risk of fraud in trading commodities

Conclusion

There are many reasons for you to invest in commodities. Judging by historical data and results, this asset class can provide attractive absolute and relative returns during appropriate economic environment. They have historically been positively correlated with inflation, while other asset class has been less or negatively correlated with inflation. If anyone invests in this asset class during unfavorable economic conditions, they must be prepared for the possibility of unpleasant results.

Read more ...

Investing in Real Estate in 4 simple ways

Investing in real estate has a lot more advantage than from investing in other asset classes such as stocks, commodity trading or hedge funds. It also offers significant advantages to a diversified investment portfolio. Investing in real estate also has a number of characteristics that differentiate them from other assets. In addition to that, rental income provides a regular revenue streams that helps to increase the overall returns.

In the following . We discuss about 4 simple ways of Real estate Investment

Read more ...

Forecating Foreign Exchange Rates

Currency exchange rates are determined by the supply and demand for the currencies. For some countries, the foreign exchange rate is the single most important parameter in the economy since; it determines the international balance of payments. There is no general rule to determine foreign exchange rate, but Eiteman has suggested the potential exchange rate determinants into five areas

·         Parity conditions

·         Infrastructure

·         Speculation

·         Cross-border FDI and Portfolio Investments

·         Political risks

Even though there is no model which has been consistent in predicting short-term foreign exchange rates, but there are several major concepts that can be used to determine the long-term behavior of foreign exchange rates.

Purchasing Power Parity

Purchasing power parity (PPP) states that over the long-run the exchange rate between two currencies adjusts to relative price levels.  Over longer time periods, PPP does tend to hold, in part since countries take this approach seriously and act to control relative inflation rates. For the short term period, however, other factors such as capital flows can remove the impact of PPP.

Balance of Payments

Balance of payments (BOP) was the initial approach used for economic modeling of the exchange rates. BOP concept traces all of the financial flows in the country during the given time horizon. All the financial transactions that occur are treated as credit and the final balance must be zero. BOP is equal to Current account plus Capital account Plus official reserve account which must be zero.

The Current account contains the trade balance, net income received, balance of services and unrequited transfers. The capital account includes the FDI, Portfolio investment, other capital inflows and net errors and omissions. Official reserve account includes the net changes in the country’s international reserves.

Relative Economic Strength

This approach focuses on the investment flows rather than the trade flows. The rationale behind this concept is that strong economies are likely to attract more capital, which causes the currencies to increase. Foreign investors must always weigh whether the higher yield offsets the risk of inflated currency values. Relative Economic Strength demonstrates how currencies should respond to economic news, but does not imply a “true” currency value. Because of this, many investors combine Purchasing power parity and Relative Economic strength for a more complete theory of interest rate movements.

Asset Approach

The asset approach is based on the ideas that markets are efficient and that exchange rates are assets traded in an efficient market.  The asset approach predicts that the spot rate behaves like any other asset--the value of the spot rate changes whenever relevant information is released.  Therefore, prices are determined based on expectations about the future.  This approach focuses on the relationship between the capital account and exchange rates.

Read more ...

How to Deal With Erroneous Credit Card Transactions

When it comes to credit card charges, you don't have to immediately assume that they are telltale signs that will enable you to identify credit card fraud. Sometimes, these are just erroneous charges or double billing that can and will be reversed. Here is how to differentiate, as well as how to deal with errors in your credit card entries.

There is no doubt that consumers really have to be vigilant with their credit card transactions. Not all credit card charges are legitimate: some credit card transactions are erroneous, while some are even telltale signs of an actual credit card fraud. A consumer should be wary once there is a string of erroneous entries on his credit report. That may be an indicator for him to investigate further to help prevent credit fraud. As with all things in life, however, correcting

a credit card record would have to start with a reasonable dialogue. Here is how to properly dispute credit card charges before you identify a credit card fraud.

Before we go on, however, we have to give you the tell-tale signs of how to identify a credit card fraud, and differentiate it with credit card charges that are legitimate, albeit erroneous:

-          It is credit card fraud when you have NEVER ordered from the company, and neither had you set foot in their store's premises.

-          It is a legitimate credit card charge when you have ordered from the company, only, there are some delivery aspects that are open for dispute.

-          It is credit card fraud when you notice some out-of-state transactions, and transactions from places you have NEVER been to in the past 6 months to a year.

-          It is a legitimate, albeit erroneous transaction if you've placed an order for a subscription, cancelled the same subscription, but are still being billed for the monthly or quarterly payments.

That being said, we go on to discuss how to handle credit card charges in dispute.

1. Initiate a dialogue. As we mentioned, a dialogue is the first step to resolving any such transactions. Whether the transactions are red flags for credit card fraud or not, the first thing to do is to file a dispute directly with the shop owner, operator, or online seller. If you've gone through a financial tool like PayPal, then chances are, you can actually file a dispute from PayPal itself. But the best thing to do really is to talk to the seller directly. For double-billing incidences, or recurrent billing beyond the termination or act of unsubscribing, still talk to the subscription provider directly or his employees.

Ask politely if you can have the charges reversed. If it is a subscription, ask if you can get the subscription discontinued, and the charges reversed. This way, you would have tried to resolve things where they were manageable. Not only that, you also gave the seller/service provider a chance to explain and redeem himself.

2. Call your credit card company. If the seller/service provider/subscription publisher refuses to take action with your questionable credit card entries, call your card company. That way, your card company will be the one to take on the headache of getting your money back. Ask if you need to fill out certain forms.

3. Send in the necessary documentation. Credit card companies will be able to reverse credit card chargesmore effectively when they have received the right documentation from the user. Usually, your credit card dispute case will not move forward until the credit card company receives your documents. Comply with these, in order to facilitate the process.

Usually, the credit card company will work on getting the consumer's charges reversed. There is generally no need for litigation nor the services of a lawyer. However, in the event that the credit card transactions were actually part of a credit card fraud operation, there is another process to follow:

1. Call your credit card company and have your card frozen.

2. Go and file a police report for the incident, so that if the credit card fraud is perpetuated beyond the first incident and the first report filed, it will be easier to press charges and there would already be a paper trail to help with the investigation on the credit card fraud activity.

3. Call the three credit unions in order to put a credit card fraud alert on your report. If you haven't yet, order credit monitoringfor your accounts so that future instances of credit card theft will be reported as it happens.

Here are the numbers of the three credit unions:

Equifax: (800) 685-1111

Experian: (888) 397-3742

TransUnion: (800) 888-4213

4. Change your SSN if you need to. While this is tricky, you may be able to file for a new SSN if the identity theft continues after already filing for different reports and freezing your accounts.

Consumer credit is truly a target of identity theft and similar crimes as of late. This is why a credit card user needs to be vigilant about his account's activities. Not all erroneous or out-of-place entries are symptoms for you to identify a credit card fraud, however. Sometimes, it may be just simple absentmindedness on your part. Other times, it could be a computer glitch. Yet other times, it may well be just an honest mistake. Either way, the first step is always to open a dialogue with the other party.

***

Joy Mali is an active blogger who is fond of sharing interesting finance related articles to encourage people to manage and protect their finances.

Read more ...

HUD Finds Reverse Mortgage Program in the Red

Recent headlines have pointed to the finding of an annual report based on the financial position of the Federal Housing Administration—the insurer of nearly all reverse mortgage loans in the U.S. The finding: FHA and its reverse mortgage program are in the red by billions of dollars.

What does this mean for reverse mortgages? 

While housing officials have pointed to potential changes to the reverse mortgage program, no changes have taken place yet. The potential changes may include a reduction in the amount of funds a borrower can receive as a percentage of his or her home equity through a reverse mortgage. Housing officials have also said the Department of Housing and Urban Development may look into limiting the uses of lump-sum reverse mortgages to paying off certain types of qualifying debt.

What does this mean for the FHA? 

The FHA’s annual audit showed the “capital position” of the administration is negative by more than $13 billion. The Home Equity Conversion Mortgage reverse mortgage program took another $2.8 billion from the agency’s economic value. What it means is that FHA is short by that amount, should the administration have to pay all of its outstanding insurance claims at once.

The implications are far reaching—depending on whom you ask. On the one hand, the FHA is mandated by law to hold a reserve fund with at least 2% of all insurance claims outstanding. This is to protect the insurance fund from falling into negative territory as it has this year.

As a result, the FHA could call on the Treasury for the first time in history to cover the potential losses the fund is facing. This action can be taken without the approval of Congress, but won’t be decided until budget talks take place in early 2013.

Could be worse?

Another school of thought, however, on the FHA’s capital position is the fact that the hole could have gone even deeper.

FHA has greatly increased its presence in the mortgage market following the departure of private capital from the market as a result of the housing crisis. The agency has offered several special programs such as the Home Affordable Modification Program to aid borrowers in refinancing their mortgages so they can stay in their homes or purchase new ones.

Had it not been for FHA’s role throughout the housing crisis, there could be many more Americans facing foreclosure.

What do I get from FHA’s insurance? 

FHA’s insurance provides several important protections to reverse mortgage borrowers. First, the FHA guarantees the borrower will receive all payments as agreed upon by the lender and borrower at the time of the loan closing.

Second, the insurance guarantees that the borrower will never owe more to repay the loan than the home is worth at the time of sale. This is a critical benefit to many people in the current housing market whose homes may have gone down in value over time.

As a borrower, once the loan becomes due for you or your heirs, you can rest assured that the sale of your home will cover the loan and interest repayment if you opt to repay the loan by selling your house.

If you already have an FHA-insured reverse mortgage, you should see no change in your loan whatsoever as a result of the housing department audit.

Read more ...

"Gold or Bitcoins" Infographic

After the recent meteoric rise (and subsequent crash) of Bitcoins we thought it would be useful to pull together an infographic comparing the 3000 year old form of money, with the up-start and very young (5 years) ‘new’ form of money.

Some have even gone so far as to describe Bitcoins as ‘digital gold’ – but is this really a fair comparison? Below we present a head-to-head match-up between the new digital currency and the oldest form of money on the planet. 

As you’ll see Bitcoins are certainly an very interesting development in the creation of money, especially given their decentralised nature and the fact that no ‘central bank’ is in control of their development. In that sense they are a true ‘free-market’ phenomenon. 

But in a few key areas gold still possesses crucial advantages over the digital upstart currency. 

"Gold or Bitcoins" Infographic - An infographic by the team at Gold Made Simple

Read more ...