Skype's free video call service is used around the world. Image: Flickr/Steven Parker

Just one year after spinning off from Ebay, Skype has filed the initial paperwork with the SEC for an initial public offering. The Skype IPO has been long expected, though some surprising numbers were revealed in the filings. After the IPO, the ownership structure of Skype will be complicated — though users are hoping that Skype will keep the free services it has become popular for.

Financial health of the Skype IPO

The Skype IPO is proposed at a value of about $100 million. The Skype SEC filings revealed revenue and income that worries some analysts. The revenue of the company for the last six months is about $406 million. The net income of the company, though, was only $13 million. With a 3 percent net margin, the company isn’t exactly growing quickly. Only about 9 percent of Skype users actually pay for the service, though they average $96 per year.

Skype’s new ownership structure

Once the Skype IPO is completed, the ownership structure will be relatively complicated. The company is based in Luxemborg, though it is offering American shares. Private investors and employees are both going to be considered owners of the company as well. These three owners will be over Skype S.A., which will issue the stocks. These stocks will be a part of Skype Global Holdco and Skype Global. These holding companies will be split into Skype, Inc. and Springboard Finance, L.L.C. Springboard Finance, L.L.C., will own 13 operating subsidiaries, including Skype Limited, Skype Sweden and Skype Software.

Possible changes after the Skype IPO

Skype claims that its Initial Public Offering will be used mostly to raise funds. In the end, though, offering stock can fundamentally change the goals of a company. With investors demanding profits, Skype could be pushed into revenue-producing moves that they may not have otherwise undertaken. While this could provide the capital for improvements to the popular Skype service, it could also backfire. Skype is already moving forward with the iPhone app and deals with wireless carriers. Nothing is for certain yet, so Skype’s 500 million users will have to wait to see what the effect of the Skype IPO will be.

Do you know what a mutual fund is?

A mutual fund is the name applied to an investment vehicle where multiple investors combine their money in order to buy an assortment of stocks. The stocks that are included in the fund have been specially selected according to each investor’s financial goals. For instance, some mutual funds are focused primarily on earning an income from the fund’s dividends, while another may be focused on seeing growth or a certain level of improvement for fund stocks. As an investment vehicle, a mutual fund is carefully targeted towards a particular objective upon which the investment group has agreed.

Who is in charge of the mutual fund?

A mutual fund is closely monitored by a portfolio manager or a team of portfolio managers. These managers choose which stocks will be a part of the fund and make other investment choices on behalf of the investors. Such choices include when to buy stocks, which ones to buy and when stocks should be sold. The fund manager is responsible for all of the important decisions made on behalf of the group and should, therefore, be selected very carefully.

How many stocks does a mutual fund have?

Every mutual fund is different. Some may only have 25 stocks, while others may have hundreds. This really depends upon the fund’s objective, how many investors the fund has and how much money each investor has in the fund.

Can money be taken out of a mutual fund?

Yes. If an investor needs emergency cash or even if she just changes her mind on the investment, money can be withdrawn from a mutual fund. If the stocks contained in the fund are up, an investor may realize a profit when withdrawing from the fund. Conversely, if prices have dropped, an investor may also realize a loss when withdrawing from a mutual fund.

Is it better to invest in a mutual fund or individual stocks?

This really depends on the investor and the investor’s financial goals. A mutual fund is sometimes less risky, because the investment is diversified over a variety of different stocks. Therefore, if one stock performs poorly, the investor may only realize a small, temporary loss while other stocks in the fund may continue to perform well. However, if that investor were only investing in one stock that ends up performing poorly, the loss is more noticeable. Smart investors realize the value in diversification, which makes mutual fund investments a good choice for many.

Do I need a lot of money to invest in a mutual fund?

A mutual fund is often the investment vehicle of choice for those who don’t have a lot of money to invest or those who are new to stock investing. Because investments made to the fund are under the supervision of portfolio management, a mutual fund is also a way for people to learn more about investing without having to do a lot to manage their investment on a daily basis. Of course, wealth education calls for learning a lot more along the way and selecting the right mutual fund is very important in the entire process. However, it doesn’t require a lot of money. This makes mutual funds a good consideration for beginning investors.

ITMN's drugs are currently under FDA review. Image from Flickr.

This morning, IterMune stocks (on the New York Stock Exchange as ITMN) rose over 60%. This was a result of the FDA annoucing it would be reviewing ITMN’s drug application for their new drug Esbriet (pirfenidone). The FDA has expressed concerns over this particular drug, however, so I wouldn’t yet recommend taking out personal installment loans just to buy this stock – at least, not yet.

ITMN drug treats lung problems

The new drug from ITMN that the FDA will be reviewing is intended to treat idiopathic pulmonary fibrosis. This is a condition where a person’s lungs (pulmonary system) develops thick, heavy scarring (fibrosis). Idiopathic cases are simply cases that have no known cause. Learn more about the disease ITMN’s new drug is intended to treat on the Mayo Clinic website or on Google Health. If the drug ITMN developed is approved, it would be the first and only treatment intended for this deadly disease.

ITMN dodges a bullet of criticism – so far

When the FDA announced that InterMune’s drug would be take up for review, the outlook was not entirely rosy. While the commentary was rather critical, it was still better than industry watchers and ITMN officials had expected – which is why ITMN stocks jumped so quickly this morning. A large part of the criticism, as pointed out by Bloomburg News was based on the fact that the drug actually failed in one of the two studies intended to test the ITMN drug’s effectiveness.

The future of ITMN looks good

While ITMN has a very long and stressful week ahead of it, the outlook for this company is fairly good. Currently, ITMN has only one approved drug – Actimmune – which treats rare congenital disorders. However, on ITMN’s website they list several more drugs in development, including second-generation HIV treatments. Business Week also points out that the drug ITMN is hoping to get approved by the FDA was approved for use in Japan in October of 2008. Their stock has had some fairly severe ups and downs, though if they can successfully use this drug to make progress on their debt repair, they will be in a good financial position for future earnings.

Think tax-deferred golden eggs

A 401(k) plan is a type of retirement plan that is offered as a voluntary investment opportunity for employees. Individual employees determine a percentage of the wages that they’d like to invest before taxes are taken out. The allowable percentage will vary from employer to employer, and the federal government places a maximum on how much can be invested annually. This maximum amount fluctuates, however, according to the consumer price index and inflation, so it is not necessarily the same each year.

Often, employers will match their employee’s contributions to a 401(k) plan either in whole or in part. The contributions made by the employer and the employee, however, are not immediately taxed, nor is the interest that the investment accrues. However, when funds are withdrawn for retirement or other needs, they are taxed at that time.

What happens to money in a 401(k) plan?

Most who invest in a 401(k) plan have the option of applying their money to many different investment vehicles, such as mutual funds, stocks and other investments. It is important, however, for employees to understand all potential risks and benefits associated with these investments and make a decision based upon this information. It is always a good idea to sit down with a qualified financial planner to help make this determination.

What if I need to withdraw money before I retire?

Money can be withdrawn from a 401(k) plan before retirement for emergency cash or for other reasons. Generally, it is a good idea to refrain from doing so, however, unless it is absolutely necessary. The reason for this is that money that is withdrawn is subject to taxation and the money will no longer earn interest or other gains once it is removed from the account. However, some people find themselves in a position where they need money right away. In this case, it is good to discuss withdrawing cash from a 401(k) plan with a financial planner or an accountant to be sure about what will be owed on the money and to discuss any other pertinent details about withdrawing it before retirement.

Can I change my mind about how to invest the money in my 401(k) plan?

Most often, this answer is yes. Unless a person is invested in their company’s stock program, money from a 401(k) plan can be channeled to another investment. Usually, a person will choose to do this when their financial goals have changed or when they are unhappy with the performance of the investment vehicles they have chosen. At any rate, most plans allow a person to make changes by making a simple phone call. In some cases, changes can be made daily, while others only allow for changes at certain intervals. This is another reason why it is advisable to sit down with a financial planner before investing in order to know what your options are should you change your mind.

Invest now for a bright future

Understanding what a 401(k) plan is and how it operates increases a person’s wealth education. With a sound financial plan, that includes retirement planning and investing, people can grow their wealth and make their money work for them. No matter a person’s income level or debt situation, everyone should be thinking forward and learning what opportunities exist for investing in a bright financial future.

Credit repair is possible, but only if you increase your debt literacy. (Photo: flickr.com)

Do you consider yourself to be financially literate? How about when it comes to debt – is your level of debt literacy high enough that concepts like credit repair are second nature to you? Chances are your opinion of your debt literacy is higher than the reality. This is much in keeping with a trend numerous studies have observed in Americans: their level of debt literacy is less than adequate to deal with a complex financial market where important decisions – even on the average consumer’s level – can make the difference between a lifetime of saving or an endless cycle of debt. One recent study for the National Bureau of Economic Research by Dartmouth Economics Professor Annamaria Lusardi and Harvard Financial Management Professor Peter Tufano entitled “Debt Literacy, Financial Experiences and Overindebtedness” shows us just how far Americans have to go before debt literacy and credit repair become a part of the everyday financial lexicon.

Survey Methodology

Saving, investing and being prepared for retirement are vital elements of financial health and well-being. However, runaway personal debt and a widespread lack of basic debt literacy understanding tend to take the place of the more positive aspects for many Americans. What the authors attempt to do with their study is to examine the connection between financial literacy and debt. As the authors see it, debt literacy amounts to “the ability to make simple decisions regarding debt contracts, in particular how one applies basic knowledge about interest compounding, measured in the context of everyday financial choices.” To measure debt literacy, the authors worked with a market research company to create and conduct a survey that asks a broad consumer sampling three questions designed to assess their understanding of basic debt literacy concepts like compound interest. The questions were intended to be solved via reasoning alone, so they were simple enough that calculators were not needed. Afterward, participants were asked to rate their own knowledge of debt literacy.

What Did They Expect to Find?

If numerous studies on the financial knowledge of the U.S. consumer were any indication, it wasn’t going to be a fairy tale ending. Douglas Bernheim documented Americans’ lack of financial knowledge as early as 1995. They fail to understand basic financial concepts, “particularly those relating to bonds, stocks, and mutual funds,” and are quite fuzzy on such things as terms and conditions on large-scale loans and mortgages. This trend looks to continue on into the future, as a National Council on Economic Education study of high school students shows “a widespread lack of knowledge.”

Is this a uniquely American phenomenon? Sign point toward “No,” as a survey of Health, Aging and Retirement in Europe (SHARE) indicates poor scores on financial numeracy and literacy scales. Even a member of the U.K. Treasury reported that United Kingdom borrowers have “a poor understanding of mortgages and interest rates.” As a whole, studies in America and Europe show that those with a lower level of debt literacy were less than likely to have a well-developed retirement savings plan, accumulated wealth, stock investments or low-fee mutual funds. They were more likely to have more expensive mortgages, however.

Survey Questions and Analysis

Here are the three debt literacy questions utilized in the authors’ study. The first involves compound interest:

Suppose you owe $1,000 on your credit card and the interest rate you are charged is 20 percent per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?

A)     2 years;

B)      less than 5 years;

C)      5 to 10 years;

D)     more than 10 years;

E)      Do not know;

F)      Refuse to answer.

Ignoring interest compounding would lead to doubling in 5 years; someone who knew about interest on interest might have selected a number less than 5; someone who knows the ―Rule of 72 would know that it would be about 3.6 years (i.e., correct answer (ii) ―less than 5 years.). Answers above five years reflect misunderstanding of the concept of interest accrual.

Fewer than 36 percent of respondents got this one right. Considering how many people carry revolving balances on credit cards, that’s a troubling statistic, but less than surprising. Many consumers have difficulty grasping percentages and fractions, and compound interest deals with these. The authors found a particular problem in this area for respondents aged 65 and older – many can’t do simple interest calculations.

How Long Will it Take to Pay Off Debt?

That’s something else any consumer with credit card debt should know, so the authors posed this as their second of three questions:

You owe $3,000 on your credit card. You pay a minimum payment of $30 each month. At an Annual Percentage Rate of 12 percent (or 1 percent per month), how many years would it take to eliminate your credit card debt if you made no additional new charges?

A)     Less than 5 year;

B)      Between 5 and 10 years;

C)      Between 10 and 15 years;

D)     Never, you will continue to be in debt;

E)      Do not know;

F)      Prefer not to answer.

Slightly more than 35 percent of respondents knew that making the minimum payment amounts to an endless cycle (choice D). That’s it. The remainder show a less than solid grasp of debt literacy on this question. Hopefully they’ll do better with the final question.

Interest, Time and Money

You purchase an appliance which costs $1,000. To pay for this appliance, you are given the following two options: a) Pay 12 monthly installments of $100 each; b) Borrow at a 20 percent annual interest rate and pay back $1,200 a year from now. Which is the more advantageous offer?

A)     Option (a);

B)      Option (b);

C)      They are the same;

D)     Do not know;

E)      Prefer not to answer.

Only seven percent got this question correct. “Most chose a) even though the stream of payments to finance the purchase of an appliance at $100 per month in (a) has an APR of about 35 percent versus the 20 percent in option (b),” write the authors. Personally, this question threw me. As I read it, no interest is implied by choice a). But perhaps I’m missing something.

Demographics of the Debt Illiterate

The study authors found that debt illiteracy is indeed widespread. Respondents 65 and over showed the least debt literacy on the first question, while younger subjects (under 30 years of age) tended to get the first question correct but miss the final two. Gender and race divisions emerged, as did those between married respondents and unmarried. Among the unmarried, it is interesting to note that those who list as being divorced, separated or widowed performed at a lower level than those who had never been married. Surprising no one, respondents with higher income (particularly those earning $75,000 per year or more) scored higher than those in lower income tax brackets.

But Who Thinks They’re Literate?

On a scale from 1 to 7, where 1 means “very low” and 7 means “very high,” the study authors asked respondents to rate their financial knowledge. The average overall score was 4.88, and most considered themselves to be at least above average. Over half of those surveyed marked themselves as a 5 or 6, while only a wink over 10 percent actually chose 4 or lower. Rankings tended to mirror the demographic groups found in the three-question knowledge portion of the survey, but there were two notable differences. In particular, the over 65 age group rated themselves highly but scored lower at an average of 5.3, while the divorced/separated/widowed did the same but clocked in at only 4.79. Again – surprising no one – those who rated themselves high on average had higher incomes and accumulated wealth.

Four Clusters, Four Levels of Debt Literacy

The authors identified four distinct groups among the survey respondents. On one end of the scale are the “in control” group, comprising 26 percent of the sample. They are “firmly engaged in the traditional financial system. These individuals all have credit cards, but do not carry any revolving balances. They have relatively high (but not the highest) levels of experience with mutual funds, stocks, and bonds. They also had the highest incomes. On the other end are “fringe” users who partake of alternative financial services more often, such as payday loans, tax refund loans and pawn shops. Their likelihood of having ever invested in a stock, bond or a mutual fund—or held a mortgage—is about one fifth that of the “in-control” sample.

The middle groups make up what the authors claim to be 43 percent of Americans. The “borrower/saver” group (12 percent) has “the highest level of experience with savings and investments of any of the four clusters, with 98 percent having experience with savings or CD products, 83 percent owning mutual funds, 83 percent owning stocks, and 65 percent owning bonds or savings bonds. They are more extended than the “in control” group in that 95 percent carry revolving credit balances. The final 31 percent are the “overextended” group, who have “less experience with savings and more markers of extended credit.” They typically only pay the minimum on credit cards and have much more experience with penalty fees and much less with stocks and bonds. The authors consider this group to represent the “average American.”

Know Your Debt Level

This is the final question the authors asked participants:

Which of the following best describes your current debt position?

A)     I have too much debt right now and I have or may have difficulty paying it off;

B)      I have about the right amount of debt right now and I face no problems with it;

C)      I have too little debt right now. I wish I could get more;

D)     I just don’t know.

In November 2007 when the data was initially collected – barely predating the recession – around 40 percent of respondents had a negative relationship with debt. It seems likely that the numbers would skew even higher.

Lack of Education Will Cost You

That’s exactly what is found with Americans in credit card debt. Those who the authors found to be less financially knowledgeable tended to pay higher fees and finance charges. In fact, the authors estimate that a third of the costs such consumers pay on credit cards are a direct result of a paucity of debt literacy. In total, credit card holders paid $26.8 billion in penalties. Those less educated financially educated make up about 28.7 percent of the cardholder population, but account for a whopping 42 percent of those charges.

Richness of financial experience and a healthy amount of financial and debt literacy are the true recipe for accumulating wealth and approaching credit repair. Considering what Lusardi and Tufano found in their study, this “widespread lack of financial skills” is something America should be concerned about. Making financial education a mandatory part of school curriculums everywhere would be a good start, because what you know is more than worth its weight in gold.

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(photo courtesy of flickr.com)

There are many companies looking for money to increase and modify their production capacities. One way they do this is by sharing the ownership of the company with individual investors.

The ownership of the company is divided into many parts – there could be millions of these parts. A price is given to each part – called share or stocks — so that the person who wants to become a partial owner of the company buys a number of those shares. He or she is free to sell them to other people after some time. There are certain things that people who want to earn money from stocks should know and do.

How to earn money from stocks

If you want to earn money from stocks, you should understand the ways in which stocks make money. There are two main ways that stockholders earn money.

Dividends

The first way of making money from stocks is the dividends that accrue every year on the stocks you buy. As an owner of the company you are entitled to your share of the profit. The profit is calculated and given to you at the end of every year. But, if you depend on dividends, you will not make enough money from stocks.

Price appreciations

The second route is the price appreciation of the particular stock. This is the best way of making money from stocks. If a company is doing well, people want to be part of it. That means that these individuals will want to buy stocks of that company from those who originally bought them. They are usually willing to pay more than the price of the first person paid. The more people looking to buy a particular stock, the higher the price they will be willing to pay. Smart investors buy stock when prices are low and sell it when prices are high. The difference is the profit.

Earning more from stocks

Tip #1: Spread out your investments

When you buy stock in several different companies you diversified your investments and thereby minimize your risks. The stock market is a volatile thing. Things change very fast. If you have a lot of money to invest, it is wise to buy stocks in different kinds of companies so that if the price of one is falling, others may be appreciating. You should be aware of the saying “don’t put all your eggs in one basket.” If you put all your money in one company and things go bad there, you will lose.

Tip #2: Sell at the right time

There are times when you should hold onto stocks and times when you should sell. If you keep stocks when the price is appreciating, you are likely not to make any money. You need to sell your stocks when the prices are increasing because the appreciation will not last forever. Prices might fall sooner than you think. Watch prices carefully, so that after they have appreciated for some time, you are prepared to sell.

You can avoid the risks

You may have heard people say that stocks too are risky, yet if you understand the above principles you can and will make money from stocks. These are the principles that keep investors in the market for the long haul. People have made fortunes in the stock market and you can, too, if you play it right.

As long as they're OK, consider installment loans for your business's short-term financial needs. (Photo: flickr.com)

Small businesses are looking to installment loans rather than stocks for funding options. Before the recession, many small businesses were investing in the stock market, trading for added revenues. Dallas-area financial planner Chance Woods stated his clients have a “mixed feeling of relief at stock gains since March, and are reluctant to fully commit to the market.” Research is showing that most small business owners are feeling the same hesitation. The financial hit many of them took due to last years’ recession is having a huge effect on their confidence to move towards stock investing again.

Woods added, “People have been on an emotional roller coaster over the last two years, so they’re not quite ready to say, ‘I’m all in’…it’s going to take some time for them to recover and a lot less market volatility than we’ve seen.”

Alternative Investing

Although alternatives to stocks like money-markets and savings accounts were popular, it seems now that the return on investment is so low, business owners are hesitant there, too. According to Bankrate.com, the current rates for both modes of investments average about 1.5 percent around the country.  Seeing the lackluster interest rate, many business owners are opting for immediate installment loan options rather than wait out slow and minimal returns of other investing vehicles.

A Case in Point

Donnie Griffin, owner of a management consulting firm in Palm Springs, California, invested his money wisely. However, when the recession hit hard, he sold a good portion of his $250,000 portfolio. One week later, the stocks saw their biggest gain throughout the recession period. Griffin agreed he had “unfortunate timing” in his decision, but he also said that he wouldn’t venture back into the stock investing market easily. “Once you make a decision I think you’ve got to just ride it out… having experienced this drop, I’m better experienced for the next time one comes around.”

Griffin is not alone. As a business owner, his sentiments are shared nationwide. Many people lost a lot of money in stocks during the down economy. Although Griffin is patient, a lot of others aren’t. They want a more solid way of guaranteed money. Installment loans for a lot of qualified small business owners are proving to be that option. These types of loans are quick and simple for the qualified applicant. They potentially can bring money in when small business owners need it most. Rather than wait out a long-term investment and then reap only a small to moderate return, business owners are more confident in alternative types of loans.

No Guarantees on the Market

The most difficult thing for investors is that there is never a guarantee of market growth. The market is volatile and may take another turn for the worse. Robert Haley of Advanced Wealth Management stated, “It’s a gamble to hold and not sell now, and it’s a gamble to go all-in.” He believes that the way to mitigate the gamble is to build a long-term portfolio, but not rely on it for immediate funding. His belief is that a portfolio is never for immediate (or even moderate-term) funding. A better option may be immediate installment loans, or assets that are quickly liquidated. These are the types of funds that small business owners should have readily available for times of trouble.

Harman International makes high-end audio equipment.

Most people interested in Harman International Industries Inc. already know that the company says it has not received a buyout offer from Arabian Peninsula Group. Rumors about the alleged buyout offer spread pretty far pretty fast. Reuters says:

Several media outlets on Sunday received faxed statements that said a private investment firm called Arabian Peninsula Group (APG) planned to buy Harman for $49.50 a share — double the high-end audio equipment maker’s Friday close of $25.18.

Although the fax quoted an executive from Arabian Peninsula Group named Donald Parker, there was no contact information. Harman says it has never heard of Arabian Peninsula Group, and so far it appears that no one else has either.

Yea or nay? Hard to say

Reuters says it’s difficult to verify whether Arabian Peninsula Group is a real company because Kuwait has no financial regulator. The area code that the fax supposedly came from was a Kuwait code.

In the United States it is easy to verify every type of business — from a payday loan company to a pet store — because businesses must have a license. However, the same level of regulation isn’t present in Kuwait, so it’s harder to verify a business’s legitimacy.

Not the first time

Reuters also reports that similar scenarios have happened before:

The incident is similar to one in April when an alleged offer from a United Arab Emirates-Kuwait consortium for diversified U.S. manufacturer Textron Inc (TXT.N) sent its shares up 47 percent. No deal ever materialized.

In both cases, a person identifying himself as a fund manager had called newsrooms touting the stories, but refusing to give contact numbers.

Fake news, real results

Though it now seems almost certain that this alleged buyout deal was a hoax, the news certainly had some real results on the stock market. The Wall Street Journal reports:

The denial sent shares slumping when the market opened, and they were recently down 8.7% to $22.98. Nearly four times the typical number of shares have changed hands on Monday. In premarket trading the shares spiked as high as $38, which would have been the highest intra-day trade since last August and the stock’s first time above $30 since October.

More searches for Arabian Peninsula Group

I know it’s not really a good yardstick, but I have a tendency to believe that anything that doesn’t exist on Wikipedia doesn’t really exist at all. Going by that logic, Arabian Peninsula Group does not exist.

Of course, by that logic I don’t really exist, either, so we’ll just call it another small piece of evidence. Also, after an intensive Google search, it doesn’t appear that Arabian Peninsula Group has a web site, which also speaks volumes about its validity, in my opinion.