How High-Yield Investment Programs (HYIP) Work

High yield investment plans (HYIP's) are investment vehicles that purport to yield very high percentage returns on investment within a short period of time. There is also considerable publicity on HYIP's as being very high risk and/or fraudulent. This article will discuss how an HYIP works in terms of 1) its financial performance and 2) its legitimacy as a financial entity and/or product.

Financial performance of HYIPs

A sample list of HYIP's can be found at www.hyip.com. Information about these HYIP's can be found through HYIP "monitor sites" such as hyip.com. HYIP's offer daily compounded interest at rates between 1-5% , however several of them offer rates in excess of 30% and as high as 140% daily. HYIP's require a cash deposit to open an account, often with varying minimum and maximum deposit requirements. HYIP's collect investor's capital and manage it through a number of techniques that may or may not be disclosed to the investor. Many HYIP's operate out of offshore legal jurisdictions such as Anguilla and Sachelles. Invested funds are not necessarily insured nor are investment returns and interest rates necessarily guaranteed.

Verification of HYIP legitimacy

Verification of HYIP legitimacy is important to knowing how a HYIP works; after all if the HYIP doesn't work correctly, then it might not work at all. To verify the legitimacy of an HYIP performing the following checks will indicate the national laws for which the investment plan operates, credibility as an investment program and physical location and licensure of the business.The following link may also be helpful in identifying and determinng legitimacy of an HYIP.

• Internet domain and physical address within your own country
• Full disclosure of the investment product and profile
• Business profile information on the nature of investments
• Registration and/or licensure with a reputable domestic department, commission, or institution such as the Securities and Exchange Commission (SEC)
• Historical performance of the HYIP and its documented quantitative statistics
• Accurate details of how and why the plan works

If the HYIP is not able to provide adequate information on the majority of the above points there is good chance money invested in HYIP may not be a secure or viable investment. Contacting the SEC to inquire about companies that raise large amounts of investment capital may be a prudent part of good due diligence prior to investing.

The reason registration with the U.S. Securities and Exchange Commission is a helpful indicator of the viability of the investment product is the required compliance with the regulations set out by the commission. High Yield Investment plans may be similar to Hedge funds in the sense they don't always have to register with the Securities and Exchange Commission if they are 1) business partnerships with a limited amount of investors, 2) Have raised equity below a certain dollar amount and 3) don't operate within U.S. legal jurisdiction.

Summary

High yield investment plans offer daily interest compounding that amount to high yield returns on investment capital. HYIP's operate online via website portals and often require wire transfers of money to open an account. Many HYIP's are not U.S. companies subject to the laws and requirements set forth by domestic regulatory bodies and therefore may not be required to insure, guarantee, report or function in a way that might be expected. HYIP's are considered by many market observers to be fraudulent capital raising schemes that benefit the initiators and managers of the HYIP only. A high level of due diligence may prove beneficial before investing funds into an HYIP.

Sources:

1. http://www.incomeinvesthome.com/info/hyip/legal.htm
2. http://www.pueblo.gsa.gov/cic_text/money/internet-fraud/internet-fraud.htm
3. http://www.mirroreyes.com/smallbiz/makemoney/hyip.html
4. http://tinyurl.com/487wo8p (MarketWatch)
5. http://www.aicpa.org/audcommctr/guidance_resources/regs_and_fncl_reprtng/other_regs/49.htm

How to Figure Out The Total Return of a Mutual Fund

Calculating the total return of a mutual fund involves 1) defining the variables within the calculation, 2) using the right formula for the calculation and 3) inputting the correct variable numbers into the calculation. Mutual funds are managed portfolios of multiple investments from multiple investors, and are subject to Federal regulations. Since each mutual fund may have a different fee, worth and payment structure, calculating the total return for each Mutual fund may be different. Some of the key variables in calculating total return of mutual funds are the following:

• Expense ratio of mutual fund
• Original investment amount
• Time period of return
• Net Asset Value (NAV)
• Dividend payments if any

Nuances of total return

In the world of investment returns there is specific lingo that sometimes applies to the calculation of returns. Terms are used to describe the nature and type of return; for example 1) annualized return 2) real rate of return and 3) compounded return are all important concepts in the accurate calculation of total return. Some terms sound similar, but mean different things such as yield and return. Understanding the meaning of the variable input is useful in making sense of the total return calculation.

For mutual fund calculations, the Net Asset Value (NAV) is important because it changes over time, thus a beginning and end NAV are required. In addition to NAV, dividends, expenses, compounding and inflation may or may not be factored into the total return equation. Once all the proper terms have been sifted and sorted, the next step is to use a formula in calculating the total return.

How to calculate the total return of a mutual fund

Calculating the total return of can be performed between partial and complete accuracy, meaning there are different formulas for calculating total return depending on how complex and accurate the variables and the formula they are used in are. For example, the methods below, as sourced from stock-market-investors.com, illustrate two simple methods of calculating total return followed by more elaborate equations that include additional variables. Since some investment accounts also accrue interest, an additional variable of compounded interest may be used with adjustments in the time value of money using an inflation variable. For some return calculations, specifically the simpler ones, online financial calculators may be of use.

• Formula 1: Total return without dividend payments:

(NAV2-NAV1)/NAV1-1= Total return without dividends

• Formula 2: Total return with dividend payments, and no expense or inflation deductions

[(NAV2-NAV1)+D]/NAV1=Total return with dividends

NAV2=Investment value at end point
NAV 1=Investment value at start point
D=Dividend(s)

• Formula 3: Total return with monthly compounding and cost basis:

Variable 1: CB=(NAV1-front end expenses)-(NAV2+back end expenses + fees)
Variable 2: Annual Compound Rate(ACR)=Formula 2 divided by NAV1+CB
Variable 3: ACR exponent= 1 divided by years held

Cost basis and annual compound adjustment formula:

ACR to the power of (multiplied by) ACR compound exponent adjustment (as above in variable 3) minus 1

• Formula 4: Total return with monthly compounding and cost basis

To adjust the compounding to be calculated monthly divide the ACR exponent i.e. annualized percentage rate value by the number of months.

ACR divided by 12 multiplied by number of months, to the power of ACR annual compound exponent adjustment which is equal to numerator 1 divided by 1/12 times number of months, minus 1

• Formula 5: Including inflation as a variable

Since inflation reduces the value of money, the annual inflation rate can be subtracted from the total return to obtain the real total return of the mutual fund. For monthly inflation deductions the inflation rate that is subtracted is divided by the number of months used in the ACR.

Ex: Formula 3 - Inflation rate
Ex2: Formula 4- Inflation rate / number of months

Summary 

Total return on Mutual funds varies on how the return is calculated, and the variables and numbers used. This article has illustrated terminology and formulas used in the calculation of total return for mutual funds. Sometimes calculators may be helpful in arriving at a final value however, understanding the quantitative terminology in Mutual Fund total return calculations is helpful in properly utilizing the correct equation. Depending on which formula is used, the cost basis adjustment, compounding and inflation if any, the total return may differ from that quoted by the Mutual fund itself.

Sources:

1. http://www.globefund.com/centre/GettingStarted06.html
2. http://www.stock-market-investors.com/pick-a-stock-guides/calculate-return-on-investment.html
3. http://www.procalcs.com/

How to Calculate Earnings Per Share

Earnings per share (EPS) is a financial measurement used by investors, accountants, analysts and others when reviewing and assessing corporate information. EPS can be calculated in several ways including the 1) basic EPS, 2) average EPS, 3) weighted average EPS and 4) Diluted EPS. The earnings per share metric illustrates how much income is retained by a company after expenses and cash out flow and as a proportion of shares outstanding. Naturally, the higher this number is the better it is for investors.

Calculating earnings per share is fairly simple, however the accuracy and type of EPS measurement should be paid attention to when making financial decisions. For example, comparing a diluted EPS to a basic EPS is like comparing Florida Oranges to California Lemons. They may have similarities, but reflect different financial scenarios and should not be considered the same when determining earnings patterns over time.

EPS calculations

Basic earnings per share: To calculate earnings per share divide net income by shares outstanding. For example $1,000,000/10,000=$100/share.

• Diluted earnings per share

If company A has additional financial securities outstanding such as debt that can be converted into shares or un-exercised employee stock options to calculate earnings per share is to incorporate all possible shares that could become part of the total share float. This method is called diluted earnings per share and does not necessarily include shares held by a company but not issued to employees, other businesses or the public.

To further illustrate, if company A above has an additional $1,000,000 in convertible bonds and the price per share is $24.00 then the $1,000,000/$24=41,667 shares. So, if the convertible bonds are converted into equity, another word for shares, then the total shares outstanding are 51,667 making the new earnings per share $19.35/share.

• Average and weighted average earnings per share

A third way to calculate earnings per share is to use an average amount of shares outstanding with or without dilution. Every day the securities markets are open shares have the potential to change ownership, be bought back by the company, converted, re-issued etc. This can change the total number of shares outstanding. To include these fluctuations in earnings per share calculates, an average of shares outstanding is used.

Averaged shares outstanding can be calculated using a regular average or a weighted average. A regular average simply takes the number of shares outstanding for multiple periods, adds them up, and then divides the total number of shares by the number of time periods. For example, a 3 day average shares outstanding is 110 if day 1 ends with 100 shares outstanding, day 2 ends with 110, and day 3 ends with 120. 330/3=110.

If a weighted average is used instead of a regular average, the amount of time in which an average or specific amount of shares outstanding exist is used in proportion to one or more other time periods with a different amount of shares outstanding. For example, for Q1 average shares outstanding are 110, Q2+Q3 average shares are 125 and Q4 average shares are 130.

Since the periods are comprised of 3 sections and the 2nd consists of 2 periods the time proportions are 25%, 50% and 25%. Such being the case, 25% x 110=27.5 shares outstanding, 50% x 125=62.5 shares outstanding and 25% x 130=32.5 shares outstanding for a total weighted average shares outstanding of 122.5.

Summary

Earnings per share is a measurement of shareholder wealth. EPS is commonly used as an investment indicator, metric and benchmark with which corporate performance is assessed. Since earnings per share can be calculated in different ways, it is important to 1) be aware of the various calculation methods, 2) what they represent, and 3) how it can be used.

Earnings per share calculations can be charted over time for technical analysis, or can be used as an indicator of corporate performance in a given financial period. Analyst estimates of EPS are often used when determining if a company has performed up to, at par with or below financial expectations.

Source: http://www.investopedia.com

Calculating Your Return on Real Estate Investments

Calculating return on real estate investments at its most fundamental level involves subtracting all the costs paid into a property from both revenue earned during the term of ownership in addition to selling price. Subtracting the buying price from the selling price is simply not an accurate way to determine real estate return because there are so many underlying benefits and costs associated with property ownership that occur on an annual basis.

In other words, real estate investing is complicated by the myriad of revenue and cost sources incurred over the term of ownership. Furthermore, in the case of real estate investment groups, and property managers, calculating return on investment is more of an annual than end game operation making profitability, and debt calculations in the form of percentages and ratios rather than simple positive or negative numerical amounts quite relevant in the assessment of return on investment.

To simplify the return on investment a good approach can involve staying organized throughout the whole investment process from start to finish while simultaneously utilizing the numerous techniques and tools involved in assessing return on investment. This means keeping track of and recording every dollar and cent put into the property and every dollar and cent returned in the form of capital gains, and tax benefits. The following sections break down the property investment process into the fundamental units of revenue, cost and techniques that can assist in the calculation and assessment of return involving the revenue and costs from the sections below.

Sources of property revenue and expense

The sources of property revenue tend to less than the numerous costs and expenses that a property can incur. For this reason it is quite vital to maximize and optimize the potential revenue of a real estate investment in order to make it worthwhile. Two lists comprised of both the source of property revenue and expense are listed as follows:

1. Source of Property Revenue:

• Capital gains (after deduction of overhead if applicable): "Profit" on the sale of the property as calculated in terms of purchase price.
• Rental income: Income earned through lease, rental or use of space by a third party.
• Tax deductions: Tax savings such as mortgage interest,
• Tax Credits: Additional tax savings such as renovation credits

2. Sources of property expense:

• Original settlement costs of real estate: All costs associated with purchase of property
• All maintenance and renovation expenses: Upkeep, repair and remodeling.
• Operating expenses/Overhead (if not deducted from capital gains): Utilities
• Total ammortized interest payments at time of sale: The sum of total interest payments
• Tax on Capital gains: Government tax incurred from profit on the sale of property
• Hazard Insurance: Protects against losses from unforeseen events
• Mortgage Insurance: Premium paid as a protection feature should the real estate enter default or foreclosure. (this expense can be avoided in some cases)
• Government Recapture tax (If applicable): Tax associated with sale of property financed by Government sources.
• Back end expenses associated with sale of property: All costs associated with sale of a property.
•Opportunity cost (if applicable): The potential loss of profit due to fixed nature of property investment i.e. loss of revenue from missing a more profitable investment
• Inflation: The cost of inflation is also an expense as this can amount to approximately 2-3% of the total value of a property per year.

As evident from the above list, there can be many more sources of expense than profit from a property investment which hints at the necessity for fiscal prudence and keen judgment when purchasing property. When purchasing a property it may be helpful to forecast and estimate the total costs of the property purchase and estimated market value of the property at a future time to assess whether or not the investment will be profitable. It can be easy to overlook some of the many expenses and costs that go to into a property making the purchase and sale prices of property somewhat inaccurate measures of the profitability of the real estate.

In essence, calculating the return on real estate investments is a numerical balancing act combined with market forces, and investment savvy. Knowing the dynamics of the real estate market, trends, property factors such as upkeep, maintenance and renovation expenses etc. are all important to turning a profit in addition to optimizing as many of the possible benefits of property as possible. The benefits of property ownership include all sources of savings, expense reduction, income and capital gain that can be squeezed out of a property.

Tips and techniques to consider in calculating return on real estate investment

One of the most opportune times to calculate the return on real estate is before it actually happens in the form of a property profile. In other words, assessing all the potential advantages and disadvantages before the property is even purchased can not only help in future calculation of return on investment, but also the front end costs. The tips below can help with the calculation of and the forecasting of return on real estate investment.

• Develop a bookkeeping system
• Utilize Investment return equations in forecasting return
• Investigate all tax implications, costs, and benefits
• Assess market conditions and real estate potential
• Optimize property income
• Reduce costs

Return On Investment Equations and Software

When forecasting and calculating annual rather than total end profits on real estate, numerical equations and software tools can be used to calculate return on investment. These tools can be especially useful amidst business property investments within fluctuating market conditions. In other words these tools help organize the many variables of property management into orderly numerical functions that provide quick and accurate answers provided the input numbers are correct. A few examples of such equations are listed below:

• Debt Coverage Ratio: Operating Income/Mortgage costs (associatedcontent, Butler)
This equation measures annual income as a percentage of cost. A division ratio that assesses profitability in terms of a ratio result rather than percentage amount. Also useful in assessing debt.

• Capitalization Rate Valuation: Net income before mortgage expenses including operating expenses/Capitalization Rate i.e. annual percentage rate of return(ezine.com, S.Gillman) Helps assess overall property value in terms of annual income before mortgages expenses are deducted.

• Total Yield: Annual Income/Sales Price (associatedcontent.com, Butler)
Measures annual income as a percentage of sales price and therefore does not include expenses and costs.

• Cash on Cash Return: Annual Income after mortgage costs/ Downpayment (associatedcontent.com, Butler) Provides an annual estimate return on initial investment after costs and is good for assessing real estate investment risk and opportunity cost.

There are also several software packages and online tools that can be utilized to calculate annual returns on real estate investment. It can be a good idea to have a strong understanding of the big picture when utilizing such tools because the tools themselves only measure isolated circumstances of revenue and cost variables.

In other words, in order to acquire an accurate assessment of return one must 1) enter the correct input variables and 2) correctly sum and utilize the outcome of all applicable equations. That is to say estimated income and credibility of the equations should be sound. The more such equations are used, the more complete the overall return on investment assessment is likely to be. An example of a free online real estate return calculator can be found at the following link.

http://www.frontdoor.com/tools/calculators/return_on_investment.aspx

To summarize the above, calculating return on real estate revenue is essentially a simple task. However, this simple task is complicated by the multiple and ongoing costs and sources of cost reduction associated with the ownership of a property. For this reason, sound bookkeeping and awareness of all the variables can be of great benefit to accurately assessing the real return on a property.

The many costs and expenses of property are sometimes overlooked when making the investment return calculation in addition to overlooking the potential reductions to capital gains such as maintenance costs and environmentally friendly renovations that may incur a significant tax credit translatable into gain from ownership of property before the property is even sold.

Sources:

1. http://athenianloans.com/Tax_Effects.html
2. http://www.HousesUnderFiftyThousand.com/due-diligence-checklist.html
3. http://ezinearticles.com/?Say-Goodbye-To-The-Gross-Rent-Multiplier&id=303508
4. http://www.associatedcontent.com/article/27644/calculate_the_return_on_your_real_estate.html?page=3
5. http://www.community-newspapers.com/archives/lgwt/20060222/lgperkins.shtml

Why Invest in a Mutual Fund? What are the Advantages and Typical Returns?

Mutual funds are managed investments that diversify a large pool of investor's money into a number of investment vehicles. There are advantages and disadvantages to investing in mutual funds, and these pertain in part to investment risk, yield, opportunity cost, fees, and financial planning. This article will outline some these pros and cons of mutual fund investing in addition to giving examples of various types of mutual funds.

Types of mutual funds available

When it comes to mutual funds there are a sizable number of choices to choose from. Some mutual funds specialize in emerging markets, others specialize in commodities, some in stocks and bonds and so on. The historical performance of a mutual fund varies from fund to fund.

Additionally, different fund managers may use different investments strategies and styles for similar types of mutual funds. Thus, the fund management is also a relevant factor in how a mutual fund will do. Some examples of mutual funds are illustrated below to demonstrate the wide range of investments a mutual fund can make possible that may not otherwise be possible via investment alternatives.

• Fidelity ContraFund (FCNTX): Invests in large capitalization companies
• ProFund Ultra Short Japan Inv (UKPIX): A mutual fund that invests on a decline in Japan's financial markets
• Dreyfus Premier Emerging Mkts Opp 1 (SEORX): Specializes in large capitalization emerging markets
•PIMCO Commodity Real Return Strategy Fund (PCRAX): A mutual fund focused on commodities investments, specifically natural resources.
• Summit Nasdaq 100 Index 1 (SANIX): A fund that invests in the 100 largest NASDAQ stock exchanges companies

Risk, fees and yield of mutual funds

Fees associated with mutual funds can also vary. A mutual fund may be a no load, front end or back end mutual fund in addition to having annual maintenance fees which vary among funds. No load funds do not charge fees for certain requested by the mutual fund owner such as buying and selling of the mutual fund.

Front-end mutual funds charge a fee and/or commission upon purchase but not upon sale whereas back end mutual funds do the reverse. Assessing the scale and amount of mutual fund management fees and charges in relation to their cost and percentage yield is an important calculation to consider when choosing mutual funds.

Mutual funds are generally a lower risk choice of investment than direct investment in options, commodities and some types stock investing. This is primarily due to 1) the professional management of the fund and 2) the diversification of risk over a number of investments. These two factors can make mutual funds a useful part of an individual, estate or business investment strategy as it hedges against risk. However, investing solely in mutual funds may also create risk because mutual funds are not entirely immune from investment risk and may not guarantee returns or value of initial investment.

Alternatives to mutual funds

Alternatives to mutual funds include Exchange Traded Funds (ETF), Unit Investment Trusts (UIT), Treasury Inflation Protected Securities (TIPS), Real Estate Investment Trusts (REIT) and Certificates of Deposit (CD) among several other options be it via investment in physical property, business or asset classes such as art, antiques, or vehicles. In other words, the number of choices an investor has is broad, and mutual funds represent only a fraction of the available choices.

Consequently, being able to weigh the advantages and disadvantages of one investment over another is essential for investment success, risk level and investment goals. How well a mutual find is capitalized i.e. its size and capacity to invest, the performance of the companies and/or financial products the fund invests in, and the tax implications or lack thereof on investing through certain funds can all be relevant when choosing to invest in a mutual fund.