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College Students Beware of Financial Aid Scams
In the recent article 15 Common Financial Aid Scams to Watch Out For, the author points out that college students may be a vulnerable demographic. So-called financial aid experts may be out to take advantage of those looking for legitimate ways to finance their education. Watch out for some of the following wording: Unclaimed Money, Buy Now, Application Fees, Free Seminar, and Guaranteed. For the complete list of scams with explanations, click here.
Finaid.org claims, “Every year, several hundred thousand students and parents are defrauded by scholarship scams. The victims of these scams lose more than $100 million annually.” There is some protection against fraud. The Scholarship Fraud Protection Act of 2000 has increased the penalties for this fraud, including a maximum fine of $500,000 and jail time.
If you feel you have been scammed, you have recourse. According to the Finaid.org site, “The following organizations can help you determine whether an offer is legitimate. They will tell you whether they have received any complaints about the company, or whether it’s currently under investigation. They can also provide you with additional information or assistance.
National Fraud Information Center (NFIC)
In addition to providing helpful information, the NFIC will pass your complaints along to the appropriate authorities, such as the Federal Trade Commission (FTC) and your state’s Attorney General’s Office. The NFIC also maintains a toll-free hotline at 1-800-876-7060.”
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Who is Buying Stocks When Everyone Is Selling?
With the recent stock market drop, there was a mass sale off of stocks. This may lead to the question: If everyone is selling, is there a chance that there are stocks that no one wants to purchase? The answer is technically no. There are always as many buyers as there are sellers and that keeps the system going.
If you are wondering who would want to buy stocks when the market is going down, the answer is: a lot of people. Some shares are picked up through options and some are picked up through money managers that have been waiting for a strike price.
There are many people who set up stock limit orders so that when a stock hits a certain dollar amount, it is automatically purchased. According to Money.cnn.com, “If you place a market order with your broker, then you are saying that you’re willing to buy at whatever happens to be the prevailing price for the stock. If you have a specific price in mind, you can set a limit order specifying the price you’re willing to pay. If the stock dips down to that level, your order will be automatically filled. Limit orders can be left open for a single day (a day order) or indefinitely (good until canceled). After you’ve bought a stock, you can instruct your broker to sell it if the price drops to a level you specify (a stop loss order). That’s a kind of insurance; it means that no matter what happens to a stock’s price you’ll never lose more than a specified amount.”
Some may look at this as legalized gambling. A capitalist is always on the look out to get a better price or better dividend yield. Dividend yields are based on the price of the stock. If the stock goes down, the yield may go up. For example since dividends are in dollar amounts and not percentages, if a $1 dividend is divided by a $20/share price then the dividend yields 5%. If that $1 dividend is divided by an $18/share price then that dividend yields more at 5.5%.
The sheer volume of trading is staggering. A local stock broker looked up today’s trade volume. For August 9, 2011, 9 billion shares traded.
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Defaulting on a Mortgage: How it Affects Your Credit Score
Many consumers have taken a financial hit with the recent economic climate. As more people are defaulting on their home loans, it is interesting to see the impact on FICO scores.
What may be a surprise is how many wealthy people with good credit are going into foreclosure. A recent article by the Arizona Republic mentioned how affluent, savvy homeowners are choosing to default on their home loans based on weighing the pros and cons to such a decision. “Recent research suggests that affluent people tend to be the main strategic defaulters, and these individuals are also the ones who would sustain more serious credit-score damage. This chart shows the resulting credit scores for two hypothetical consumers – one with an average initial score of 680 on the FICO scale and another with a high initial score of 780.”
| Situation | Initial 680 Score | Initial 780 Score |
| 30 days late on mortgage | 600-620 | 670-690 |
| 90 days late on mortgage | 600-620 | 650-670 |
| Short sale, no deficiency | 610-630 | 655-675 |
| Short sale with deficiency or foreclosure | 575-595 | 620-640 |
| Bankruptcy | 530-550 | 540-560 |
The savvy homeowner that sees their home investment as a money pit, may go ahead and buy what they perceive as a better home purchase, perhaps a short sale, before they default on their original investment. In this way, they have good credit to purchase the new home before they take the hit to their credit score caused by the default of their original home purchase.
What to Know before Investing in IPOs like LinkedIn or Pandora
Is investing in an initial public offering (IPO) a good idea? With the recent LinkedIn and Pandora IPOs and talk of future IPOs with Twitter and Facebook, this is a question that many investors may be considering. Imagine getting in on the ground floor of a giant like Coca-Cola? It might have been a wild ride, but those that hung in there, had a nice payoff. Joshua Kennon of About.com reported, “A single share of Coca-Cola purchased for $40 at the IPO in 1919, for example, crashed to $19 the following year. Yet, today, that one share, with dividends reinvested, is worth over $5 million.”
Kennon suggests that if you have the stomach for risking your investment, you might want to consider whether the company can grow at a rate high enough to justify its price, whether there are any patents or trademarks to protect the business, whether you’d want to hold onto this stock for 30 years and if it fell by 50% would you have the stomach to handle it?
DailyFinance reported some additional questions to ask before investing in an IPO: (1) Is there an attractive market for the product? (2) Does the company have a significant share of the market? (3) Is the company’s management team experienced? (4) Is the company growing and profitable?
The following list shows some more recent IPO original offering prices compared to their current price (as of July, 2011):
Google Initial Offering Price, 2004: $85/share
Google Price July, 2011: $530/share
Pandora Initial Offering Price, June, 2011: $16/share
Pandora Price July, 2011: $19/share
LinkedIn Initial Offering Price, May, 2011: $45/share
LinkedIn Price July, 2011: $98/share
Many employees of companies like Google became wealthy overnight when their companies went IPO. The New York Times article Google’s IPO 5 Years Later stated, “When the offering finally happened, it turned an estimated 1,000 Google employees into millionaires, at least on paper. Since then, many more millionaires have been minted inside the Googleplex, the Web search company’s headquarters in Mountain View, Calif.”
Not all startups have been this successful. Businesspundit lists the 25 Internet Startups that Bombed Miserably. MSMoney also warned, “Many investors fret they’ll miss the next big thing because they have no access to the IPO market, but study after study has proven that IPOs historically underperform the broader markets.” FIGuide echoed that same sentiment in their article Should You Invest in IPOs, stating that there might be better options. “A seminal paper published in The Journal of Finance looked at IPOs from 1970 to 1990. During the five years after issuance, investors in these IPOs got average annual returns of only 5%.(1) By contrast, the overall stock market’s average annual return from 1970 to 1990 was more than double that figure, at 10.8%. To put this in perspective, $1,000 invested at 5% for 20 years would have generated $2,653, while $1,000 invested at 10.8% would have generated $7,777, almost three times as much.”
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Can the Unemployed Manage to Eliminate Debts?
Unemployment is at its worst in this recent economic meltdown and these unemployed people are struggling to pay off debts. Are you in a similar situation? Then you can file bankruptcy as it is considered to be the last option of debt relief programs. But if you declare bankruptcy then it might ruin your financial future. Therefore, you can follow a debt management plan to avoid the adverse effect on your financial situation.
Here are a few tips that will help you eliminate your debt without damaging your financial situation:
1. Look for a job:
You can be successful in eradicating your debts if you get a job immediately. You can use your income to pay off the debts and attain financial liberation. You need to work hard in order to get a well paid job therefore start applying for it. Until you get a job try to deliver newspaper, set up a roadside soft drink stand or deliver pizzas and utilize the money towards paying off your debts.
2. Negotiate with the creditors:
The next crucial step to eliminate your debts is to negotiate with the creditors to lower the principal balance and interest rate to make it affordable. You can easily convince the creditors by stating your financially distressed situation. If you directly approach the creditors then you can avoid the threatening calls from the creditors. Make sure that you are aware of the Fair Debt Collection Practices Act (FDCPA) then you can take action against your creditors if they harass you.
3. Pay the accounts down.
Right now do you have a part time job? Then inculcate the habit of saving so that you can start paying off your debts immediately. If you are unable to manage your expenses then formulate a budget plan as it will help you pay off the debts in an organized way.
4. Keep a track of your credit report:
You need to keep a track of your credit report once you pay off your debts. Make sure that your credit report shows paid in full otherwise your credit rating will drop. Therefore, request your creditors to notify the credit bureau as “paid in full”. You should review your credit report every three months in order to check if there is any discrepancies on it. If you locate any wrong entries on the credit report then ask the credit bureau to remove it.
5. Avoid borrowing:
It is advisable to avoid borrowing in order to secure your financial situation. You can create an emergency fund and deposit a portion of your income in the savings account then you can prevent yourself from taking out new loan.
GUEST POST: Stewart Smith, financial writer.