{"appState":{"pageLoadApiCallsStatus":true},"categoryState":{"relatedCategories":{"headers":{"timestamp":"2022-08-15T12:31:19+00:00"},"categoryId":34273,"data":{"title":"Personal Finance","slug":"personal-finance","image":{"src":null,"width":0,"height":0},"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273}],"parentCategory":{"categoryId":34224,"title":"Business, Careers, & Money","slug":"business-careers-money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"}},"childCategories":[{"categoryId":34084,"title":"Medicare","slug":"medicare","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34084"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34274,"title":"Veterans' Benefits","slug":"veterans-benefits","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34274"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}},{"categoryId":34275,"title":"Budgeting","slug":"budgeting","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34275"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34276,"title":"Charitable Giving","slug":"charitable-giving","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34276"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}},{"categoryId":34277,"title":"Cryptocurrency","slug":"cryptocurrency","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34277"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34278,"title":"Estate Planning","slug":"estate-planning","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34278"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}},{"categoryId":34279,"title":"Financing Education","slug":"financing-education","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34279"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34280,"title":"Insurance","slug":"insurance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34280"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}},{"categoryId":34288,"title":"Investing","slug":"investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34301,"title":"Loans & Credit","slug":"loans-credit","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34301"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}},{"categoryId":34308,"title":"Retirement","slug":"retirement","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34308"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34309,"title":"Social Security","slug":"social-security","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34309"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}},{"categoryId":34310,"title":"Taxes","slug":"taxes","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34310"},"image":{"src":"/img/background-image-2.fabfbd5c.png","width":0,"height":0}},{"categoryId":34311,"title":"General Personal Finance","slug":"general-personal-finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34311"},"image":{"src":"/img/background-image-1.daf74cf0.png","width":0,"height":0}}],"description":"Money, money, money. Whether it's stashed in your sock drawer or invested in complex instruments, we'll help you keep it safe and watch it grow.","relatedArticles":{"self":"https://dummies-api.dummies.com/v2/articles?category=34273&offset=0&size=5"},"hasArticle":true,"hasBook":true},"_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"}},"relatedCategoriesLoadedStatus":"success"},"listState":{"list":{"count":10,"total":2280,"items":[{"headers":{"creationTime":"2016-03-26T13:43:58+00:00","modifiedTime":"2022-08-04T19:37:39+00:00","timestamp":"2022-08-05T00:01:09+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Medicare","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34084"},"slug":"medicare","categoryId":34084}],"title":"How to Opt Out of Medicare Part B","strippedTitle":"how to opt out of medicare part b","slug":"how-to-opt-out-of-medicare-part-b","canonicalUrl":"","seo":{"metaDescription":"Even though you have to pay a monthly premium for Medicare Part B, you should think twice about opting out of coverage.","noIndex":0,"noFollow":0},"content":"Medicare Part B covers two kinds of health services: medically necessary care and preventive care.\r\n\r\nYou need to think twice about saying no to Medicare Part B coverage, even though it costs a monthly premium to use it. (If that amount would be a hardship, you may be able to have the premiums paid by your state.) It’s an important decision you need to make during the enrollment process — especially if you’re signed up automatically — and you should be very clear on how to deal with it given your situation.\r\n\r\nThere are situations when opting out of Part B is okay — in other words, not likely to cause you any regrets (or cost you money!) in the future. And there are situations when opting out is costly or causes other problems.\r\n\r\nBizarrely, the rules are different for people who have <a href=\"https://www.dummies.com/personal-finance/insurance/health-insurance/medicare-for-dummies-cheat-sheet/\" target=\"_blank\" rel=\"noopener\">Medicare</a> because they’re 65 or older and those who have it at earlier ages because of a disability. So look separately at these two groups to know when people in each can confidently turn down Part B.\r\n<h2 id=\"tab1\" >Know when to turn down Part B if you’re 65 or older</h2>\r\n<p class=\"Remember\">In general, when you’re 65 or older, you should decline Part B only if you have group health insurance from an employer for whom you or your spouse is still actively working and that insurance is <i>primary</i> to Medicare. (That is, it pays before Medicare does.)</p>\r\nIn this situation, you can delay Part B enrollment without penalty until the employment stops or the insurance ends. So if you’re not yet drawing Social Security retirement benefits, just skip signing up for Part B.\r\n\r\nOr if you’re enrolled automatically because you’re receiving those benefits, you can decline Part B by following the instructions that Social Security sends you in the letter that accompanies your Medicare card and meeting the specified deadline.\r\n\r\nOpting out ensures that you don’t have to pay Part B premiums or, if you’re receiving retirement benefits, have them deducted each month from your Social Security retirement check. But of course, if you prefer to pay for both employer insurance and Medicare coverage — and that’s entirely your choice — go ahead and enroll (or stay enrolled) in Part B.\r\n<p class=\"Warning\">One group of people is especially prone to turn down Part B without giving it adequate thought: people age 65 and older who are in same-sex marriages or domestic arrangements with people of the same or the opposite sex and who are covered under health insurance from their partner’s employer. If you’re in either of these situations, you need to find out exactly how current law applies to you.</p>\r\n\r\n<h2 id=\"tab2\" >When to turn down Part B if you’re under 65</h2>\r\nIn general, if you have Medicare based on disability, you should decline Part B only if\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\">You have health insurance from an employer for whom you or your spouse actively works, and the employer has 100 or more employees.</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">You’re covered as a family member on somebody else’s group health plan at work, and the employer has 100 or more employees.</p>\r\n</li>\r\n</ul>\r\nWhat does <i>family member</i> mean? It means that the employer providing this insurance regards you as eligible for health coverage based on your domestic relationship with an employee — even if you aren’t formally married to that person and even if they are the same sex as you.\r\n<h2 id=\"tab3\" >When turning down Part B at any age is risky</h2>\r\nRegardless of whether you have Medicare based on disability or age, you should definitely enroll in Part B (or not refuse it) if you have health insurance that will automatically become <i>secondary</i> to Medicare (it will pay after Medicare does) when your Medicare benefits begin. This includes the following:\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\">Health insurance that you buy yourself on the open insurance market and that isn’t provided by an employer</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Health insurance from an employer with fewer than 20 employees (if you’re 65 or older)</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Health insurance from an employer with fewer than 100 employees (if you have Medicare because of disability)</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Retiree benefits from a former employer (your own or your spouse’s)</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Health benefits from the military’s TRICARE For Life retiree program</p>\r\n</li>\r\n</ul>\r\n<h2 id=\"tab4\" >When Medicare is primary coverage, it pays the bills</h2>\r\nYou should enroll in Part B coverage in the preceding situations for a very good reason quite apart from the possibilities of late penalties down the road if you don’t. When Medicare is considered primary coverage, it pays your medical bills first.\r\n\r\nSo if you’re not enrolled in Part B, you run the real risk of having your insurance plan deny any claims that Medicare could’ve paid — from basic ones like doctors’ visits and lab tests to major ones like surgery. In other words, you may face having to pay the entire bill.\r\n\r\nWorse, if your own insurer takes a while to realize that you haven’t enrolled in Part B, your plan may even ask you to pay back all the money it has spent on your medical services since you became eligible for Medicare.\r\n\r\nThis kind of thing doesn’t always happen. For example, if you’re a federal retiree and receiving health insurance from a plan in the Federal Employee Health Benefits Program, you aren’t required to enroll in Part B.\r\n<p class=\"Remember\">When deciding whether to accept or decline Part B, finding out whether Medicare would be primary or secondary to any other insurance that you have is critically important.</p>\r\n<strong>Copyright © 2014 AARP. All rights reserved.</strong>","description":"Medicare Part B covers two kinds of health services: medically necessary care and preventive care.\r\n\r\nYou need to think twice about saying no to Medicare Part B coverage, even though it costs a monthly premium to use it. (If that amount would be a hardship, you may be able to have the premiums paid by your state.) It’s an important decision you need to make during the enrollment process — especially if you’re signed up automatically — and you should be very clear on how to deal with it given your situation.\r\n\r\nThere are situations when opting out of Part B is okay — in other words, not likely to cause you any regrets (or cost you money!) in the future. And there are situations when opting out is costly or causes other problems.\r\n\r\nBizarrely, the rules are different for people who have <a href=\"https://www.dummies.com/personal-finance/insurance/health-insurance/medicare-for-dummies-cheat-sheet/\" target=\"_blank\" rel=\"noopener\">Medicare</a> because they’re 65 or older and those who have it at earlier ages because of a disability. So look separately at these two groups to know when people in each can confidently turn down Part B.\r\n<h2 id=\"tab1\" >Know when to turn down Part B if you’re 65 or older</h2>\r\n<p class=\"Remember\">In general, when you’re 65 or older, you should decline Part B only if you have group health insurance from an employer for whom you or your spouse is still actively working and that insurance is <i>primary</i> to Medicare. (That is, it pays before Medicare does.)</p>\r\nIn this situation, you can delay Part B enrollment without penalty until the employment stops or the insurance ends. So if you’re not yet drawing Social Security retirement benefits, just skip signing up for Part B.\r\n\r\nOr if you’re enrolled automatically because you’re receiving those benefits, you can decline Part B by following the instructions that Social Security sends you in the letter that accompanies your Medicare card and meeting the specified deadline.\r\n\r\nOpting out ensures that you don’t have to pay Part B premiums or, if you’re receiving retirement benefits, have them deducted each month from your Social Security retirement check. But of course, if you prefer to pay for both employer insurance and Medicare coverage — and that’s entirely your choice — go ahead and enroll (or stay enrolled) in Part B.\r\n<p class=\"Warning\">One group of people is especially prone to turn down Part B without giving it adequate thought: people age 65 and older who are in same-sex marriages or domestic arrangements with people of the same or the opposite sex and who are covered under health insurance from their partner’s employer. If you’re in either of these situations, you need to find out exactly how current law applies to you.</p>\r\n\r\n<h2 id=\"tab2\" >When to turn down Part B if you’re under 65</h2>\r\nIn general, if you have Medicare based on disability, you should decline Part B only if\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\">You have health insurance from an employer for whom you or your spouse actively works, and the employer has 100 or more employees.</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">You’re covered as a family member on somebody else’s group health plan at work, and the employer has 100 or more employees.</p>\r\n</li>\r\n</ul>\r\nWhat does <i>family member</i> mean? It means that the employer providing this insurance regards you as eligible for health coverage based on your domestic relationship with an employee — even if you aren’t formally married to that person and even if they are the same sex as you.\r\n<h2 id=\"tab3\" >When turning down Part B at any age is risky</h2>\r\nRegardless of whether you have Medicare based on disability or age, you should definitely enroll in Part B (or not refuse it) if you have health insurance that will automatically become <i>secondary</i> to Medicare (it will pay after Medicare does) when your Medicare benefits begin. This includes the following:\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\">Health insurance that you buy yourself on the open insurance market and that isn’t provided by an employer</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Health insurance from an employer with fewer than 20 employees (if you’re 65 or older)</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Health insurance from an employer with fewer than 100 employees (if you have Medicare because of disability)</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Retiree benefits from a former employer (your own or your spouse’s)</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Health benefits from the military’s TRICARE For Life retiree program</p>\r\n</li>\r\n</ul>\r\n<h2 id=\"tab4\" >When Medicare is primary coverage, it pays the bills</h2>\r\nYou should enroll in Part B coverage in the preceding situations for a very good reason quite apart from the possibilities of late penalties down the road if you don’t. When Medicare is considered primary coverage, it pays your medical bills first.\r\n\r\nSo if you’re not enrolled in Part B, you run the real risk of having your insurance plan deny any claims that Medicare could’ve paid — from basic ones like doctors’ visits and lab tests to major ones like surgery. In other words, you may face having to pay the entire bill.\r\n\r\nWorse, if your own insurer takes a while to realize that you haven’t enrolled in Part B, your plan may even ask you to pay back all the money it has spent on your medical services since you became eligible for Medicare.\r\n\r\nThis kind of thing doesn’t always happen. For example, if you’re a federal retiree and receiving health insurance from a plan in the Federal Employee Health Benefits Program, you aren’t required to enroll in Part B.\r\n<p class=\"Remember\">When deciding whether to accept or decline Part B, finding out whether Medicare would be primary or secondary to any other insurance that you have is critically important.</p>\r\n<strong>Copyright © 2014 AARP. All rights reserved.</strong>","blurb":"","authors":[],"primaryCategoryTaxonomy":{"categoryId":34084,"title":"Medicare","slug":"medicare","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34084"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Know when to turn down Part B if you’re 65 or older","target":"#tab1"},{"label":"When to turn down Part B if you’re under 65","target":"#tab2"},{"label":"When turning down Part B at any age is risky","target":"#tab3"},{"label":"When Medicare is primary coverage, it pays the bills","target":"#tab4"}],"relatedArticles":{"fromBook":[{"articleId":274372,"title":"What Medicare Doesn’t Cover","slug":"what-medicare-doesnt-cover","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274372"}},{"articleId":274360,"title":"The ABCs (and D) of Medicare","slug":"the-abcs-and-d-of-medicare","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274360"}},{"articleId":247001,"title":"What Medicare Part D Covers","slug":"medicare-part-d-covers","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/247001"}},{"articleId":207834,"title":"Medicare For Dummies Cheat Sheet","slug":"medicare-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207834"}},{"articleId":159146,"title":"9 Frequently Asked Questions about Medicare","slug":"9-frequently-asked-questions-about-medicare","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/159146"}}],"fromCategory":[{"articleId":274372,"title":"What Medicare Doesn’t Cover","slug":"what-medicare-doesnt-cover","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274372"}},{"articleId":274360,"title":"The ABCs (and D) of Medicare","slug":"the-abcs-and-d-of-medicare","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274360"}},{"articleId":247078,"title":"Hospital Benefit Periods in Medicare Part A","slug":"hospital-benefit-periods-medicare-part","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/247078"}},{"articleId":247075,"title":"Medicare Part A's Three-Day Rule","slug":"medicare-part-three-day-rule","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/247075"}},{"articleId":247069,"title":"Finding Doctors Who Accept Medicare Patients","slug":"finding-doctors-accept-medicare-patients","categoryList":["business-careers-money","personal-finance","medicare"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/247069"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282389,"slug":"medicare-for-dummies-4th-edition","isbn":"9781119689935","categoryList":["business-careers-money","personal-finance","medicare"],"amazon":{"default":"https://www.amazon.com/gp/product/1119689937/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119689937/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119689937-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119689937/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119689937/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/medicare-for-dummies-4th-edition-cover-9781119689935-203x255.jpg","width":203,"height":255},"title":"Medicare For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"<p><p><b><b data-author-id=\"9067\">Patricia Barry</b></b> is a senior editor at the <i>AARP Bulletin</i> and a recognized expert on the Medicare Part D prescription drug program. During a long career in journalism, she has authored thousands of articles and two guidebooks on healthcare and social policy. Since 1999, she has specialized in writing about Medicare and prescription drugs.</p>","authors":[{"authorId":9067,"name":"Patricia Barry","slug":"patricia-barry","description":" <p><b>Patricia Barry</b> is a senior editor at the <i>AARP Bulletin</i> and a recognized expert on the Medicare Part D prescription drug program. During a long career in journalism, she has authored thousands of articles and two guidebooks on healthcare and social policy. Since 1999, she has specialized in writing about Medicare and prescription drugs. ","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9067"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;medicare&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119689935&quot;]}]\" id=\"du-slot-62ec5dc5a857f\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;medicare&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119689935&quot;]}]\" id=\"du-slot-62ec5dc5a8c24\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Solve","lifeExpectancy":"Six months","lifeExpectancySetFrom":"2021-07-06T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":158814},{"headers":{"creationTime":"2016-03-26T16:03:47+00:00","modifiedTime":"2022-08-03T14:09:33+00:00","timestamp":"2022-08-03T18:01:32+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Bonds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34291"},"slug":"bonds","categoryId":34291}],"title":"The Interest Rate Risk in Bond Investing","strippedTitle":"the interest rate risk in bond investing","slug":"the-interest-rate-risk-in-bond-investing","canonicalUrl":"","seo":{"metaDescription":"Even bonds carry some risk in investing. This article explains how changing interest rates affect your bond investments.","noIndex":0,"noFollow":0},"content":"The vast majority of bond offerings are rather staid investments. You give your money to a government or corporation. You receive a steady flow of income, usually twice a year, for a certain number of years. Then, typically after a few years, you get your original money back. Sometimes you pay taxes. A broker usually takes a cut. Beginning and end of story.\r\n\r\nThe reason for bonds’ staid status is not only that they provide steady and predictable streams of income, but also that as a bondholder you have first dibs on the issuer’s money. A corporation is legally bound to pay you your interest before it doles out any dividends to people who own company stock.\r\n\r\nIf a company starts to go through hard times, any proceeds from the business or (in the case of an actual bankruptcy) from the sale of assets go to you before they go to shareholders.\r\n\r\nHowever, bonds offer no ironclad guarantees. First dibs on the money aside, bonds are not FDIC-insured savings accounts. They are not without some risk. For that matter, even an FDIC-insured savings account — even stuffing your money under the proverbial mattress! — also carries some risk.\r\n\r\nInterest rates go up, and interest rates go down. And whenever they do, bond prices move, almost in synch, in the opposite direction. Why? If you’re holding a bond that pays 5 percent, and interest rates move up so that most new bonds are paying 7 percent, your old bond becomes about as desirable to hold as a pet scorpion.\r\n\r\nAny rational buyer of bonds would, all things being equal, choose a new bond paying 7 percent rather than your relic, still paying only 5 percent. Should you try to sell the bond, unless you can find a real sucker, the price you are likely to get will be deeply discounted.\r\n\r\nThe longer off the maturity of the bond, the more its price will drop with rising interest rates. Thus long-term bonds tend to be the most volatile of all bonds. Think it through: If you have a bond paying 5 percent that matures in a year, and the prevailing interest rate moves up to 7 percent, you’re looking at relatively inferior coupon payments for the next 12 months.\r\n\r\nIf you’re holding a 5 percent bond that matures in ten years, you’re looking at potentially ten years of inferior coupon payments.\r\n\r\nNo one wants to buy a bond offering ten years of inferior coupon payments unless she can get that bond for a steal.\r\n<p class=\"Warning\">That’s why if you try to sell a bond after a period of rising interest rates, you take a loss. If you hold the bond to maturity, you can avoid that loss, but you pay an opportunity cost because your money is tied up earning less than the prevailing rate of interest. Either way, you lose.</p>\r\nOf course, interest rate risk has its flip side: If interest rates fall, your existing bonds, paying the older, higher interest rates, suddenly start looking awfully good to potential buyers. They aren’t pet scorpions anymore — more like Cocker Spaniel puppies. If you decide to sell, you’ll get a handsome price.\r\n\r\nThis “flip side” to interest rate risk is precisely what has caused the most peculiar situation in the past three decades, where the longest-term Treasury bonds (with 30-year maturities) have actually done as well as the S&P 500 in total returns. The yield on these babies has dipped from over 14 percent in the early 1980s to just a little over 3 percent today.\r\n\r\nHence, those old bonds, which are now maturing, have turned to gold. Will this happen again in the next 30 years? Not unless long-term Treasuries in the year 2042 are being issued with a negative 8 percent interest rate. Of course, that isn’t going to happen. More likely, interest rates are going to climb back to historical norms.\r\n\r\nInterest rate risk has perhaps never been greater than it is today. You would be foolish to put your money into 30-year Treasuries and assume that you are going to get 11.5 percent a year annual return, as some very lucky investors have done over the last 30 years. Chances are, well . . . anything can happen over 30 years, but keep your expectations modest, please.","description":"The vast majority of bond offerings are rather staid investments. You give your money to a government or corporation. You receive a steady flow of income, usually twice a year, for a certain number of years. Then, typically after a few years, you get your original money back. Sometimes you pay taxes. A broker usually takes a cut. Beginning and end of story.\r\n\r\nThe reason for bonds’ staid status is not only that they provide steady and predictable streams of income, but also that as a bondholder you have first dibs on the issuer’s money. A corporation is legally bound to pay you your interest before it doles out any dividends to people who own company stock.\r\n\r\nIf a company starts to go through hard times, any proceeds from the business or (in the case of an actual bankruptcy) from the sale of assets go to you before they go to shareholders.\r\n\r\nHowever, bonds offer no ironclad guarantees. First dibs on the money aside, bonds are not FDIC-insured savings accounts. They are not without some risk. For that matter, even an FDIC-insured savings account — even stuffing your money under the proverbial mattress! — also carries some risk.\r\n\r\nInterest rates go up, and interest rates go down. And whenever they do, bond prices move, almost in synch, in the opposite direction. Why? If you’re holding a bond that pays 5 percent, and interest rates move up so that most new bonds are paying 7 percent, your old bond becomes about as desirable to hold as a pet scorpion.\r\n\r\nAny rational buyer of bonds would, all things being equal, choose a new bond paying 7 percent rather than your relic, still paying only 5 percent. Should you try to sell the bond, unless you can find a real sucker, the price you are likely to get will be deeply discounted.\r\n\r\nThe longer off the maturity of the bond, the more its price will drop with rising interest rates. Thus long-term bonds tend to be the most volatile of all bonds. Think it through: If you have a bond paying 5 percent that matures in a year, and the prevailing interest rate moves up to 7 percent, you’re looking at relatively inferior coupon payments for the next 12 months.\r\n\r\nIf you’re holding a 5 percent bond that matures in ten years, you’re looking at potentially ten years of inferior coupon payments.\r\n\r\nNo one wants to buy a bond offering ten years of inferior coupon payments unless she can get that bond for a steal.\r\n<p class=\"Warning\">That’s why if you try to sell a bond after a period of rising interest rates, you take a loss. If you hold the bond to maturity, you can avoid that loss, but you pay an opportunity cost because your money is tied up earning less than the prevailing rate of interest. Either way, you lose.</p>\r\nOf course, interest rate risk has its flip side: If interest rates fall, your existing bonds, paying the older, higher interest rates, suddenly start looking awfully good to potential buyers. They aren’t pet scorpions anymore — more like Cocker Spaniel puppies. If you decide to sell, you’ll get a handsome price.\r\n\r\nThis “flip side” to interest rate risk is precisely what has caused the most peculiar situation in the past three decades, where the longest-term Treasury bonds (with 30-year maturities) have actually done as well as the S&P 500 in total returns. The yield on these babies has dipped from over 14 percent in the early 1980s to just a little over 3 percent today.\r\n\r\nHence, those old bonds, which are now maturing, have turned to gold. Will this happen again in the next 30 years? Not unless long-term Treasuries in the year 2042 are being issued with a negative 8 percent interest rate. Of course, that isn’t going to happen. More likely, interest rates are going to climb back to historical norms.\r\n\r\nInterest rate risk has perhaps never been greater than it is today. You would be foolish to put your money into 30-year Treasuries and assume that you are going to get 11.5 percent a year annual return, as some very lucky investors have done over the last 30 years. Chances are, well . . . anything can happen over 30 years, but keep your expectations modest, please.","blurb":"","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <b>Russell Wild,</b> MBA, an expert on index investing, is a fee-only financial planner and investment advisor and the principal of Global Portfolios. He is the author or coauthor of nearly two dozen nonfiction books.","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"primaryCategoryTaxonomy":{"categoryId":34291,"title":"Bonds","slug":"bonds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34291"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":208279,"title":"Bond Investing For Dummies Cheat Sheet","slug":"bond-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208279"}},{"articleId":175087,"title":"Questions to Ask a Bond Broker about a Bond","slug":"questions-to-ask-a-bond-broker-about-a-bond","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175087"}},{"articleId":175085,"title":"How to Read Bond Ratings","slug":"how-to-read-bond-ratings","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175085"}},{"articleId":175062,"title":"Important Websites for Bond Investors","slug":"important-websites-for-bond-investors","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175062"}},{"articleId":175054,"title":"How to Choose between a Taxable and a Tax-Free Municipal Bond","slug":"how-to-choose-between-a-taxable-and-a-tax-free-municipal-bond","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175054"}}],"fromCategory":[{"articleId":275083,"title":"How to Invest in Bonds","slug":"how-to-invest-in-bonds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275083"}},{"articleId":208279,"title":"Bond Investing For Dummies Cheat Sheet","slug":"bond-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208279"}},{"articleId":207444,"title":"<b>Investing in Bonds For Dummies Cheat Sheet</b>","slug":"investing-in-bonds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207444"}},{"articleId":202959,"title":"Buying U.S. Savings Bonds in an Uncertain Economy","slug":"buying-u-s-savings-bonds-in-an-uncertain-economy","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/202959"}},{"articleId":202861,"title":"Savings Bonds Pros and Cons","slug":"savings-bonds-pros-and-cons","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/202861"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282006,"slug":"bond-investing-for-dummies-2nd-edition","isbn":"9781118274439","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"amazon":{"default":"https://www.amazon.com/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1118274431-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/bond-investing-for-dummies-2nd-edition-cover-9781118274439-203x255.jpg","width":203,"height":255},"title":"Bond Investing For Dummies","testBankPinActivationLink":"","bookOutOfPrint":false,"authorsInfo":"<p><b data-author-id=\"9023\">Russell Wild, MBA,</b> is the author or coauthor of many nonfiction books, including <i>Exchange-Traded Funds For Dummies, Index Investing For Dummies,</i> and <i>One Year to an Organized Financial Life</i>. He is a NAPFA-certified financial advisor, registered with the Pennsylvania Securities Commission. </p>","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <b>Russell Wild,</b> MBA, an expert on index investing, is a fee-only financial planner and investment advisor and the principal of Global Portfolios. He is the author or coauthor of nearly two dozen nonfiction books.","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781118274439&quot;]}]\" id=\"du-slot-62eab7fcbb3f6\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781118274439&quot;]}]\" id=\"du-slot-62eab7fcbbc47\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2022-08-03T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":172191},{"headers":{"creationTime":"2016-03-26T16:03:46+00:00","modifiedTime":"2022-08-03T14:07:52+00:00","timestamp":"2022-08-03T18:01:32+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Bonds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34291"},"slug":"bonds","categoryId":34291}],"title":"The Reinvestment Risk in Bond Investing","strippedTitle":"the reinvestment risk in bond investing","slug":"the-reinvestment-risk-in-bond-investing","canonicalUrl":"","seo":{"metaDescription":"Even investing in bonds carries some risk, and this article explains the reinvestment risk in an easy-to-understand way.","noIndex":0,"noFollow":0},"content":"The vast majority of bond offerings are rather staid investments. You give your money to a government or corporation. You receive a steady flow of income, usually twice a year, for a certain number of years. Then, typically after a few years, you get your original money back. Sometimes you pay taxes. A broker usually takes a cut. Beginning and end of story.\r\n\r\nThe reason for bonds’ staid status is not only that they provide steady and predictable streams of income, but also that as a bondholder you have first dibs on the issuer’s money. A corporation is legally bound to pay you your interest before it doles out any dividends to people who own company stock.\r\n\r\nIf a company starts to go through hard times, any proceeds from the business or (in the case of an actual bankruptcy) from the sale of assets go to you before they go to shareholders.\r\n\r\nHowever, bonds offer no ironclad guarantees. All investments carry some risk, such as reinvestment risk.\r\n\r\nWhen you invest $1,000 in, say, a 20-year bond paying 6 percent, you may be counting on your money compounding every year. If that is the case — if your money does compound, and you reinvest all your interest payments at 6 percent — after 20 years you’ll have $3,262.\r\n\r\nBut suppose you invest $1,000 in a 20-year bond paying 6 percent and, after four years, the bond is <i>called</i><i>.</i> The bond issuer unceremoniously gives back your principal, and you no longer hold the bond. Interest rates have dropped in the past four years, and now the best you can do is to buy another bond that pays 4 percent.\r\n\r\nSuppose you do just that, and you hold the new bond for the remainder of the 20 years. Instead of $3,262, you are left with $2,387 — about 27 percent less money.\r\n\r\nThis is called <i>reinvestment</i> risk, and it’s a very real risk of bond investing, especially when you buy callable or shorter-term individual bonds. Of course, you can buy non-callable bonds and earn less interest, or you can buy longer-term bonds and risk that interest rates will rise. Tradeoffs! Tradeoffs! This is what investing is all about.\r\n<p class=\"Tip\">Note that one way of dealing with reinvestment risk is to treat periods of declining interest rates as only temporary investment setbacks. What goes down usually goes back up.</p>","description":"The vast majority of bond offerings are rather staid investments. You give your money to a government or corporation. You receive a steady flow of income, usually twice a year, for a certain number of years. Then, typically after a few years, you get your original money back. Sometimes you pay taxes. A broker usually takes a cut. Beginning and end of story.\r\n\r\nThe reason for bonds’ staid status is not only that they provide steady and predictable streams of income, but also that as a bondholder you have first dibs on the issuer’s money. A corporation is legally bound to pay you your interest before it doles out any dividends to people who own company stock.\r\n\r\nIf a company starts to go through hard times, any proceeds from the business or (in the case of an actual bankruptcy) from the sale of assets go to you before they go to shareholders.\r\n\r\nHowever, bonds offer no ironclad guarantees. All investments carry some risk, such as reinvestment risk.\r\n\r\nWhen you invest $1,000 in, say, a 20-year bond paying 6 percent, you may be counting on your money compounding every year. If that is the case — if your money does compound, and you reinvest all your interest payments at 6 percent — after 20 years you’ll have $3,262.\r\n\r\nBut suppose you invest $1,000 in a 20-year bond paying 6 percent and, after four years, the bond is <i>called</i><i>.</i> The bond issuer unceremoniously gives back your principal, and you no longer hold the bond. Interest rates have dropped in the past four years, and now the best you can do is to buy another bond that pays 4 percent.\r\n\r\nSuppose you do just that, and you hold the new bond for the remainder of the 20 years. Instead of $3,262, you are left with $2,387 — about 27 percent less money.\r\n\r\nThis is called <i>reinvestment</i> risk, and it’s a very real risk of bond investing, especially when you buy callable or shorter-term individual bonds. Of course, you can buy non-callable bonds and earn less interest, or you can buy longer-term bonds and risk that interest rates will rise. Tradeoffs! Tradeoffs! This is what investing is all about.\r\n<p class=\"Tip\">Note that one way of dealing with reinvestment risk is to treat periods of declining interest rates as only temporary investment setbacks. What goes down usually goes back up.</p>","blurb":"","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <b>Russell Wild,</b> MBA, an expert on index investing, is a fee-only financial planner and investment advisor and the principal of Global Portfolios. He is the author or coauthor of nearly two dozen nonfiction books.","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"primaryCategoryTaxonomy":{"categoryId":34291,"title":"Bonds","slug":"bonds","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34291"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":208279,"title":"Bond Investing For Dummies Cheat Sheet","slug":"bond-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208279"}},{"articleId":175087,"title":"Questions to Ask a Bond Broker about a Bond","slug":"questions-to-ask-a-bond-broker-about-a-bond","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175087"}},{"articleId":175085,"title":"How to Read Bond Ratings","slug":"how-to-read-bond-ratings","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175085"}},{"articleId":175062,"title":"Important Websites for Bond Investors","slug":"important-websites-for-bond-investors","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175062"}},{"articleId":175054,"title":"How to Choose between a Taxable and a Tax-Free Municipal Bond","slug":"how-to-choose-between-a-taxable-and-a-tax-free-municipal-bond","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/175054"}}],"fromCategory":[{"articleId":275083,"title":"How to Invest in Bonds","slug":"how-to-invest-in-bonds","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275083"}},{"articleId":208279,"title":"Bond Investing For Dummies Cheat Sheet","slug":"bond-investing-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208279"}},{"articleId":207444,"title":"<b>Investing in Bonds For Dummies Cheat Sheet</b>","slug":"investing-in-bonds-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207444"}},{"articleId":202959,"title":"Buying U.S. Savings Bonds in an Uncertain Economy","slug":"buying-u-s-savings-bonds-in-an-uncertain-economy","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/202959"}},{"articleId":202861,"title":"Savings Bonds Pros and Cons","slug":"savings-bonds-pros-and-cons","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/202861"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282006,"slug":"bond-investing-for-dummies-2nd-edition","isbn":"9781118274439","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","bonds"],"amazon":{"default":"https://www.amazon.com/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1118274431-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1118274431/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/bond-investing-for-dummies-2nd-edition-cover-9781118274439-203x255.jpg","width":203,"height":255},"title":"Bond Investing For Dummies","testBankPinActivationLink":"","bookOutOfPrint":false,"authorsInfo":"<p><b data-author-id=\"9023\">Russell Wild, MBA,</b> is the author or coauthor of many nonfiction books, including <i>Exchange-Traded Funds For Dummies, Index Investing For Dummies,</i> and <i>One Year to an Organized Financial Life</i>. He is a NAPFA-certified financial advisor, registered with the Pennsylvania Securities Commission. </p>","authors":[{"authorId":9023,"name":"Russell Wild","slug":"russell-wild","description":" <b>Russell Wild,</b> MBA, an expert on index investing, is a fee-only financial planner and investment advisor and the principal of Global Portfolios. He is the author or coauthor of nearly two dozen nonfiction books.","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9023"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781118274439&quot;]}]\" id=\"du-slot-62eab7fcb3154\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;bonds&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781118274439&quot;]}]\" id=\"du-slot-62eab7fcb39e7\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Five years","lifeExpectancySetFrom":"2022-08-03T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":172189},{"headers":{"creationTime":"2016-03-26T21:01:55+00:00","modifiedTime":"2022-08-02T17:55:37+00:00","timestamp":"2022-08-02T18:01:11+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"Investment Vehicles","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34290"},"slug":"investment-vehicles","categoryId":34290},{"name":"Dividends","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34294"},"slug":"dividends","categoryId":34294}],"title":"Value Investing: How to Spot a Bargain","strippedTitle":"value investing: how to spot a bargain","slug":"value-investing-how-to-spot-a-bargain","canonicalUrl":"","seo":{"metaDescription":"Learn the various factors successful value investors consider as they look for great bargains in the stock market.","noIndex":0,"noFollow":0},"content":"Some people are better at bargain hunting than others. What usually separates the clueless from the pros is that the pros know what something is worth. The same is true for finding bargains on Wall Street. You need to know what a stock is worth, and low price isn’t always a bargain.\r\n\r\nValue investors hunt for bargains, but they buy only after performing some careful research and crunching the numbers. When you spot a stock that seems to be underpriced, ask the following questions to determine whether it’s a real buy:\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\"><b>Is this stock down due to market conditions? </b>If the broader stock market is down, possibly due to an economic slowdown or recession, chances are good that most other stocks are down too. If the share price falls but the company’s fundamentals remain strong, this stock may be the bargain you’ve been looking for. (If the market is up but the stock is down, the stock isn’t necessarily a loser. The drop in share price may be an anomaly representing a good buying opportunity. Ask more questions.)</p>\r\n</li>\r\n</ul>\r\n<p class=\"Remember\">When market conditions turn sour, a rational reason for indiscriminate selling is when investors experience a liquidity crisis. Desperate for cash but unable to sell their worst money-losing investments, investors in this situation sell what they can, typically their most liquid stocks and bonds. Often these may be their best investments, but the need for cash forces them to sell. This scenario provides a bargain for the value investor.</p>\r\n\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\"><b>Is this stock down because of sector news? </b>If bad news comes out of one stock in the sector, traders may flee from stocks in the same sector. If a good company’s stock takes a hit because of another company’s misfortune, that’s a bargain waiting to happen.</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\"><b>Is the stock down because it’s not in a sexy industry? </b>At the peak of the tech bubble, anything that wasn’t a technology stock (pretty much anything that functioned as a part of the economy prior to 1980) was considered out of fashion, and their stock prices fell as a result. However, they continued to post earnings and revenue growth. The industrials, manufacturers, food processors, and other standard bearers became value stocks in the late 1990s. Value investors were rewarded for their patience and conviction when the tech bubble burst and investors returned to more traditional companies.</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\"><b>Is this stock down because of problems specific to this company? </b>If investors have fled for good reason, sell shares in the company if you own them or avoid buying if you don’t. However, keep in mind that the market tends to overreact and that some negative news can be very short-lived, especially if it’s not true. A passing bit of bad news can trigger a good buying opportunity, but if the news points out fundamental problems in the company’s success or operations, watch out. Be wary of the following:</p>\r\n\r\n<ul class=\"level-two\">\r\n \t<li>\r\n<p class=\"first-para\">Declining sales or earnings</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Excessive debt</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Little or no cash flow</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Scandal</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Illegality, such as falsifying documents or insider trading</p>\r\n</li>\r\n</ul>\r\n</li>\r\n</ul>\r\nIf this stock has a lot of issues, the beautiful thing about the stock market is you don’t have to hang around. Money can stagnate or even rot in a dead stock, but if you sell and put the money into a true value stock, you may be able to recoup some of your losses.","description":"Some people are better at bargain hunting than others. What usually separates the clueless from the pros is that the pros know what something is worth. The same is true for finding bargains on Wall Street. You need to know what a stock is worth, and low price isn’t always a bargain.\r\n\r\nValue investors hunt for bargains, but they buy only after performing some careful research and crunching the numbers. When you spot a stock that seems to be underpriced, ask the following questions to determine whether it’s a real buy:\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\"><b>Is this stock down due to market conditions? </b>If the broader stock market is down, possibly due to an economic slowdown or recession, chances are good that most other stocks are down too. If the share price falls but the company’s fundamentals remain strong, this stock may be the bargain you’ve been looking for. (If the market is up but the stock is down, the stock isn’t necessarily a loser. The drop in share price may be an anomaly representing a good buying opportunity. Ask more questions.)</p>\r\n</li>\r\n</ul>\r\n<p class=\"Remember\">When market conditions turn sour, a rational reason for indiscriminate selling is when investors experience a liquidity crisis. Desperate for cash but unable to sell their worst money-losing investments, investors in this situation sell what they can, typically their most liquid stocks and bonds. Often these may be their best investments, but the need for cash forces them to sell. This scenario provides a bargain for the value investor.</p>\r\n\r\n<ul class=\"level-one\">\r\n \t<li>\r\n<p class=\"first-para\"><b>Is this stock down because of sector news? </b>If bad news comes out of one stock in the sector, traders may flee from stocks in the same sector. If a good company’s stock takes a hit because of another company’s misfortune, that’s a bargain waiting to happen.</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\"><b>Is the stock down because it’s not in a sexy industry? </b>At the peak of the tech bubble, anything that wasn’t a technology stock (pretty much anything that functioned as a part of the economy prior to 1980) was considered out of fashion, and their stock prices fell as a result. However, they continued to post earnings and revenue growth. The industrials, manufacturers, food processors, and other standard bearers became value stocks in the late 1990s. Value investors were rewarded for their patience and conviction when the tech bubble burst and investors returned to more traditional companies.</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\"><b>Is this stock down because of problems specific to this company? </b>If investors have fled for good reason, sell shares in the company if you own them or avoid buying if you don’t. However, keep in mind that the market tends to overreact and that some negative news can be very short-lived, especially if it’s not true. A passing bit of bad news can trigger a good buying opportunity, but if the news points out fundamental problems in the company’s success or operations, watch out. Be wary of the following:</p>\r\n\r\n<ul class=\"level-two\">\r\n \t<li>\r\n<p class=\"first-para\">Declining sales or earnings</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Excessive debt</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Little or no cash flow</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Scandal</p>\r\n</li>\r\n \t<li>\r\n<p class=\"first-para\">Illegality, such as falsifying documents or insider trading</p>\r\n</li>\r\n</ul>\r\n</li>\r\n</ul>\r\nIf this stock has a lot of issues, the beautiful thing about the stock market is you don’t have to hang around. Money can stagnate or even rot in a dead stock, but if you sell and put the money into a true value stock, you may be able to recoup some of your losses.","blurb":"","authors":[{"authorId":9024,"name":"Lawrence Carrel","slug":"lawrence-carrel","description":" <p><b>Lawrence Carrel</b> is a contributing writer for <i>The Journal of Indexes</i> &#47; IndexUniverse.com, where he writes a weekly column on the exchange&#45;traded fund and indexing industries. ","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9024"}}],"primaryCategoryTaxonomy":{"categoryId":34294,"title":"Dividends","slug":"dividends","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34294"}},"secondaryCategoryTaxonomy":{"categoryId":34298,"title":"Stocks","slug":"stocks","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34298"}},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":209141,"title":"Dividend Stocks For Dummies Cheat Sheet","slug":"dividend-stocks-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/209141"}},{"articleId":193296,"title":"Investing in the Top Sectors for Dividend Stocks","slug":"investing-in-the-top-sectors-for-dividend-stocks","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193296"}},{"articleId":193295,"title":"Performing Your Due Diligence when Investing in Dividend Stocks","slug":"performing-your-due-diligence-when-investing-in-dividend-stocks","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193295"}},{"articleId":193294,"title":"Six Signs of a Promising Dividend Stock Company","slug":"six-signs-of-a-promising-dividend-stock-company","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193294"}},{"articleId":193287,"title":"Researching Your Dividend Stock Picks with Important Formulas","slug":"researching-your-dividend-stock-picks-with-important-formulas","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193287"}}],"fromCategory":[{"articleId":209141,"title":"Dividend Stocks For Dummies Cheat Sheet","slug":"dividend-stocks-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/209141"}},{"articleId":207442,"title":"Investing in Dividends For Dummies Cheat Sheet","slug":"investing-in-dividends-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/207442"}},{"articleId":193294,"title":"Six Signs of a Promising Dividend Stock Company","slug":"six-signs-of-a-promising-dividend-stock-company","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193294"}},{"articleId":193295,"title":"Performing Your Due Diligence when Investing in Dividend Stocks","slug":"performing-your-due-diligence-when-investing-in-dividend-stocks","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193295"}},{"articleId":193296,"title":"Investing in the Top Sectors for Dividend Stocks","slug":"investing-in-the-top-sectors-for-dividend-stocks","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193296"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":282156,"slug":"dividend-stocks-for-dummies","isbn":"9780470466018","categoryList":["business-careers-money","personal-finance","investing","investment-vehicles","dividends"],"amazon":{"default":"https://www.amazon.com/gp/product/0470466014/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/0470466014/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/0470466014-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/0470466014/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/0470466014/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/dividend-stocks-for-dummies-cover-9780470466018-203x255.jpg","width":203,"height":255},"title":"Dividend Stocks For Dummies","testBankPinActivationLink":"","bookOutOfPrint":false,"authorsInfo":"<b data-author-id=\"9024\">Lawrence Carrel</b> is a financial journalist and served as a staff writer at TheWallStreetJournal.com, SmartMoney.com, and TheStreet.com. He is the author of <i>ETFs for the Long Run: What They Are, How They Work, and Simple Strategies for Successful Long-Term Investing</i> (Wiley).","authors":[{"authorId":9024,"name":"Lawrence Carrel","slug":"lawrence-carrel","description":" <p><b>Lawrence Carrel</b> is a contributing writer for <i>The Journal of Indexes</i> &#47; IndexUniverse.com, where he writes a weekly column on the exchange&#45;traded fund and indexing industries. ","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9024"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;dividends&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9780470466018&quot;]}]\" id=\"du-slot-62e9666777e8e\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;investment-vehicles&quot;,&quot;dividends&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9780470466018&quot;]}]\" id=\"du-slot-62e96667783ce\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Two years","lifeExpectancySetFrom":"2022-08-02T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":190502},{"headers":{"creationTime":"2016-03-26T21:40:29+00:00","modifiedTime":"2022-08-02T14:56:55+00:00","timestamp":"2022-08-02T18:01:11+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"General Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34300"},"slug":"general-investing","categoryId":34300}],"title":"The Optimal F Money Management Style","strippedTitle":"the optimal f money management style","slug":"the-optimal-f-money-management-style","canonicalUrl":"","seo":{"metaDescription":"Learn about this method day traders use to manage their money, in which you calculate the ideal fraction of your money to allocate per trade.","noIndex":0,"noFollow":0},"content":"Over the years, day traders have developed many different ways to manage their money. Some of these are rooted in superstition, but most are based on different statistical probability theories. The underlying idea is that you should never place all of your money in a single trade, but rather put in an amount that is appropriate given the level of volatility. Otherwise, you risk losing everything too soon.\r\n<p class=\"Tip\">Calculating position size under many of these formulas is tricky stuff. That’s why brokerage firms and trading software packages often include money management calculators.</p>\r\nOptimal F is only one method. There are other methods out there, and none is suitable to all markets all the time. Folks trading both options and stocks may want to use one system for option trades and another for stock trades. If that’s your situation, you have one big money management decision to make before you begin: how much money to allocate to each market.\r\n<h2 id=\"tab1\" >Optimal F</h2>\r\nThe <i>Optimal F</i> system of money management was devised by Ralph Vince, and he’s written several books about this and other money management issues. The idea is that you determine the ideal fraction of your money to allocate per trade based on past performance. If your Optimal F is 18 percent, then each trade should be 18 percent of your account — no more, no less. The system is similar to the fixed fraction and fixed ratio methods, but with a few differences.\r\n\r\nThe following figure shows the equation for finding the number of shares of stock, N, to trade according to the Optimal F method.\r\n<div class=\"imageBlock\" style=\"width: 200px;\">\r\n\r\n[caption id=\"\" align=\"alignnone\" width=\"200\"]<img src=\"https://www.dummies.com/wp-content/uploads/180950.image0.jpg\" alt=\"The equation for finding the number of shares to trade under Optimal F.\" width=\"200\" height=\"58\" /> The equation for finding the number of shares to trade under Optimal F[/caption]\r\n\r\n</div>\r\nF is a factor based on the basis of historical data, and the risk is the biggest percentage loss that you experienced in the past. Using these numbers and the current price, you can find the contracts or shares you need to buy. If your account has $25,000, your biggest loss was 40 percent, your F is determined to be 30 percent, and you’re looking at a stock trading at $25 per share, then you should buy 750 shares:\r\n<div class=\"imageBlock\" style=\"width: 200px;\">\r\n\r\n[caption id=\"\" align=\"alignnone\" width=\"200\"]<img src=\"https://www.dummies.com/wp-content/uploads/180951.image1.jpg\" alt=\"An example of the Optimal F calculation.\" width=\"200\" height=\"47\" /> An example of the Optimal F calculation[/caption]\r\n\r\n</div>\r\nThe Optimal F number itself is a mean based on historical trade results. The risk number is also based on past returns, and that’s one problem with this method: it only kicks in after you have some trade data. A second problem is that you need to set up a spreadsheet to calculate it (so read Ralph Vince’s book if you want to try it out).\r\n\r\nSome traders only use Optimal F in certain market conditions, in part because the history changes each time a trade is made, and that history doesn’t always lead to usable numbers.","description":"Over the years, day traders have developed many different ways to manage their money. Some of these are rooted in superstition, but most are based on different statistical probability theories. The underlying idea is that you should never place all of your money in a single trade, but rather put in an amount that is appropriate given the level of volatility. Otherwise, you risk losing everything too soon.\r\n<p class=\"Tip\">Calculating position size under many of these formulas is tricky stuff. That’s why brokerage firms and trading software packages often include money management calculators.</p>\r\nOptimal F is only one method. There are other methods out there, and none is suitable to all markets all the time. Folks trading both options and stocks may want to use one system for option trades and another for stock trades. If that’s your situation, you have one big money management decision to make before you begin: how much money to allocate to each market.\r\n<h2 id=\"tab1\" >Optimal F</h2>\r\nThe <i>Optimal F</i> system of money management was devised by Ralph Vince, and he’s written several books about this and other money management issues. The idea is that you determine the ideal fraction of your money to allocate per trade based on past performance. If your Optimal F is 18 percent, then each trade should be 18 percent of your account — no more, no less. The system is similar to the fixed fraction and fixed ratio methods, but with a few differences.\r\n\r\nThe following figure shows the equation for finding the number of shares of stock, N, to trade according to the Optimal F method.\r\n<div class=\"imageBlock\" style=\"width: 200px;\">\r\n\r\n[caption id=\"\" align=\"alignnone\" width=\"200\"]<img src=\"https://www.dummies.com/wp-content/uploads/180950.image0.jpg\" alt=\"The equation for finding the number of shares to trade under Optimal F.\" width=\"200\" height=\"58\" /> The equation for finding the number of shares to trade under Optimal F[/caption]\r\n\r\n</div>\r\nF is a factor based on the basis of historical data, and the risk is the biggest percentage loss that you experienced in the past. Using these numbers and the current price, you can find the contracts or shares you need to buy. If your account has $25,000, your biggest loss was 40 percent, your F is determined to be 30 percent, and you’re looking at a stock trading at $25 per share, then you should buy 750 shares:\r\n<div class=\"imageBlock\" style=\"width: 200px;\">\r\n\r\n[caption id=\"\" align=\"alignnone\" width=\"200\"]<img src=\"https://www.dummies.com/wp-content/uploads/180951.image1.jpg\" alt=\"An example of the Optimal F calculation.\" width=\"200\" height=\"47\" /> An example of the Optimal F calculation[/caption]\r\n\r\n</div>\r\nThe Optimal F number itself is a mean based on historical trade results. The risk number is also based on past returns, and that’s one problem with this method: it only kicks in after you have some trade data. A second problem is that you need to set up a spreadsheet to calculate it (so read Ralph Vince’s book if you want to try it out).\r\n\r\nSome traders only use Optimal F in certain market conditions, in part because the history changes each time a trade is made, and that history doesn’t always lead to usable numbers.","blurb":"","authors":[],"primaryCategoryTaxonomy":{"categoryId":34300,"title":"General Investing","slug":"general-investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34300"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Optimal F","target":"#tab1"}],"relatedArticles":{"fromBook":[{"articleId":193497,"title":"Kelly Criterion Method of Money Management","slug":"kelly-criterion-method-of-money-management","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193497"}}],"fromCategory":[{"articleId":287556,"title":"Options Trading For Dummies Cheat Sheet","slug":"options-trading-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/287556"}},{"articleId":285735,"title":"What Is ESG Investing?","slug":"what-is-esg-investing","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/285735"}},{"articleId":285761,"title":"Just When You Thought It Was Safe: Coronawashing","slug":"just-when-you-thought-it-was-safe-coronawashing","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/285761"}},{"articleId":273978,"title":"Investing For Canadians All-in-One For Dummies","slug":"investing-for-canadians-all-in-one-for-dummies","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/273978"}},{"articleId":265694,"title":"Online Investing: Get More with a Discount Broker","slug":"online-investing-get-more-with-a-discount-broker","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/265694"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":294139,"slug":"trading-psychology-for-dummies","isbn":"9781119879589","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"amazon":{"default":"https://www.amazon.com/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119879582-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":null,"width":0,"height":0},"title":"Trading Psychology For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"","authors":[{"authorId":35166,"name":"Roland Ullrich","slug":"roland-ullrich","description":"","_links":{"self":"https://dummies-api.dummies.com/v2/authors/35166"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;general-investing&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119879589&quot;]}]\" id=\"du-slot-62e966675bb1d\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;general-investing&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119879589&quot;]}]\" id=\"du-slot-62e966675c074\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Two years","lifeExpectancySetFrom":"2022-08-02T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":193493},{"headers":{"creationTime":"2016-03-26T21:40:31+00:00","modifiedTime":"2022-08-02T14:52:32+00:00","timestamp":"2022-08-02T18:01:10+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34288"},"slug":"investing","categoryId":34288},{"name":"General Investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34300"},"slug":"general-investing","categoryId":34300}],"title":"Kelly Criterion Method of Money Management","strippedTitle":"kelly criterion method of money management","slug":"kelly-criterion-method-of-money-management","canonicalUrl":"","seo":{"metaDescription":"Learn about this method for calculating risk in trading, which uses an equation traders refer to as edge divided by odds.","noIndex":0,"noFollow":0},"content":"The Kelly Criterion is a method of management that helps you calculate how much money you might risk on a trade, given the level of volatility in the market. It emerged from statistical work done by John Kelly at Bell Laboratories in the 1950s. The goal was to figure out the best ways to manage signal-noise issues in long-distance telephone communications. Very quickly, the mathematicians who worked on it saw that there were applications to gambling, and in no time, the formula took off.\r\n\r\nUsing the Kelly Criterion for trading is only one method. There are other methods out there, and none is suitable to all markets all the time. Folks trading both options and stocks may want to use one system for option trades and another for stock trades.\r\n\r\nTo calculate the ideal percentage of your portfolio to put at risk, you need to know what percentage of your trades are expected to win as well as the return from a winning trade and the ratio performance of winning trades to losing trades. The shorthand that many traders use for the Kelly Criterion is <i>edge divided by odds</i>, and in practice, the formula looks like this:\r\n<blockquote>Kelly % = W – [(1 – W) / R]</blockquote>\r\nW is the percentage of winning trades, and R is the ratio of the average gain of the winning trades relative to the average loss of the losing trades.\r\n\r\nFor example, assume you have a system that loses 40% of the time with a loss of 1% and that wins 60 % of the time with a gain of 1.5%. Plugging that into the Kelly formula, the right percentage to trade is .60 – [(1 – .60)/(.015/.01)], or 33.3 percent.\r\n\r\nAs long as you limit your trades to no more than 33% of your capital, you should never run out of money. The problem, of course, is that if you have a long string of losses, you could find yourself with too little money to execute a trade. Many traders use a “half-Kelly” strategy, limiting each trade to half the amount indicated by the Kelly Criterion, as a way to keep the trading account from shrinking too quickly. They are especially likely to do this if the Kelly Criterion generates a number greater than about 20 percent, as in this example.","description":"The Kelly Criterion is a method of management that helps you calculate how much money you might risk on a trade, given the level of volatility in the market. It emerged from statistical work done by John Kelly at Bell Laboratories in the 1950s. The goal was to figure out the best ways to manage signal-noise issues in long-distance telephone communications. Very quickly, the mathematicians who worked on it saw that there were applications to gambling, and in no time, the formula took off.\r\n\r\nUsing the Kelly Criterion for trading is only one method. There are other methods out there, and none is suitable to all markets all the time. Folks trading both options and stocks may want to use one system for option trades and another for stock trades.\r\n\r\nTo calculate the ideal percentage of your portfolio to put at risk, you need to know what percentage of your trades are expected to win as well as the return from a winning trade and the ratio performance of winning trades to losing trades. The shorthand that many traders use for the Kelly Criterion is <i>edge divided by odds</i>, and in practice, the formula looks like this:\r\n<blockquote>Kelly % = W – [(1 – W) / R]</blockquote>\r\nW is the percentage of winning trades, and R is the ratio of the average gain of the winning trades relative to the average loss of the losing trades.\r\n\r\nFor example, assume you have a system that loses 40% of the time with a loss of 1% and that wins 60 % of the time with a gain of 1.5%. Plugging that into the Kelly formula, the right percentage to trade is .60 – [(1 – .60)/(.015/.01)], or 33.3 percent.\r\n\r\nAs long as you limit your trades to no more than 33% of your capital, you should never run out of money. The problem, of course, is that if you have a long string of losses, you could find yourself with too little money to execute a trade. Many traders use a “half-Kelly” strategy, limiting each trade to half the amount indicated by the Kelly Criterion, as a way to keep the trading account from shrinking too quickly. They are especially likely to do this if the Kelly Criterion generates a number greater than about 20 percent, as in this example.","blurb":"","authors":[],"primaryCategoryTaxonomy":{"categoryId":34300,"title":"General Investing","slug":"general-investing","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34300"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[{"articleId":193493,"title":"The Optimal F Money Management Style","slug":"the-optimal-f-money-management-style","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193493"}}],"fromCategory":[{"articleId":287556,"title":"Options Trading For Dummies Cheat Sheet","slug":"options-trading-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/287556"}},{"articleId":285735,"title":"What Is ESG Investing?","slug":"what-is-esg-investing","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/285735"}},{"articleId":285761,"title":"Just When You Thought It Was Safe: Coronawashing","slug":"just-when-you-thought-it-was-safe-coronawashing","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/285761"}},{"articleId":273978,"title":"Investing For Canadians All-in-One For Dummies","slug":"investing-for-canadians-all-in-one-for-dummies","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/273978"}},{"articleId":265694,"title":"Online Investing: Get More with a Discount Broker","slug":"online-investing-get-more-with-a-discount-broker","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/265694"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":294139,"slug":"trading-psychology-for-dummies","isbn":"9781119879589","categoryList":["business-careers-money","personal-finance","investing","general-investing"],"amazon":{"default":"https://www.amazon.com/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119879582-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119879582/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":null,"width":0,"height":0},"title":"Trading Psychology For Dummies","testBankPinActivationLink":"","bookOutOfPrint":true,"authorsInfo":"","authors":[{"authorId":35166,"name":"Roland Ullrich","slug":"roland-ullrich","description":"","_links":{"self":"https://dummies-api.dummies.com/v2/authors/35166"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;general-investing&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119879589&quot;]}]\" id=\"du-slot-62e966670b85d\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;investing&quot;,&quot;general-investing&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119879589&quot;]}]\" id=\"du-slot-62e966670c15e\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"Two years","lifeExpectancySetFrom":"2022-08-02T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":193497},{"headers":{"creationTime":"2019-09-01T00:59:34+00:00","modifiedTime":"2022-07-25T20:23:50+00:00","timestamp":"2022-07-26T00:01:08+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Cryptocurrency","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34277"},"slug":"cryptocurrency","categoryId":34277}],"title":"Basic Ethereum Smart Contract Syntax","strippedTitle":"basic ethereum smart contract syntax","slug":"basic-ethereum-smart-contract-syntax","canonicalUrl":"","seo":{"metaDescription":"If you want to get involved with Ethereum development, you'll need to know how to code smart contracts in Solidity. Here's how.","noIndex":0,"noFollow":0},"content":"If you plan to do any Ethereum development, you’ll likely be using Solidity, one of the most popular programming languages for smart contracts. Let’s take a look at some basic Solidity syntax. When you write Solidity source code, you save that code in a file with the extension .sol.\r\n\r\n[caption id=\"attachment_263815\" align=\"aligncenter\" width=\"535\"]<img class=\"wp-image-263815 size-full\" src=\"https://www.dummies.com/wp-content/uploads/ethereum-smart-contact-code.jpg\" alt=\"Ethereum smat contract code\" width=\"535\" height=\"385\" /> ©Shutterstock/polygraphus[/caption]\r\n\r\nA Solidity program has several main sections, as follows:\r\n<ul>\r\n \t<li><strong>Pragma:</strong> This tells Solidity what versions of the compiler are valid to compile this file.</li>\r\n \t<li><strong>Comments:</strong> Developers should use comments for documenting code.</li>\r\n \t<li><strong>Import:</strong> An import defines an external file that contains code that your smart contract needs.</li>\r\n \t<li><strong>Contract(s):</strong> This section is where the body of your smart contract code resides.</li>\r\n</ul>\r\n<h2 id=\"tab1\" >Declaring valid compiler version in Ethereum smart contracts</h2>\r\nThe <code>pragma</code> directive should be the first line of code in a Solidity file. Because the Solidity language is still maturing, it is common for new compiler versions to include changes that would fail to compile older programs. The <code>pragma</code> directive helps avoid compiler failures due to using a newer compiler.\r\n\r\nHere is the syntax for the <code>pragma</code> directive:\r\n<pre class=\"code\">pragma Solidity <<version number>>;</pre>\r\nHere is a sample <code>pragma</code> directive:\r\n<pre class=\"code\">pragma Solidity ^0.4.24;</pre>\r\n<p class=\"article-tips remember\">All statements in Solidity end with a semicolon.</p>\r\nThe version number starts with a 0, followed by a major build number and a minor build number. For example, the version number 0.4.24 refers to major build 4 and minor build 24. The caret symbol (^) before the version number tells Solidity that it can use the latest build in a major version range. In the preceding example, Solidity can use a compiler from any build in the version 4 build range. This is a way to tell readers that your program was written for 0.4.24 but will still compile for subsequent version 4 builds.\r\n\r\nAlthough using the caret in the <code>pragma</code> directive provides flexibility, it is a better practice to drop the caret and tell Solidity exactly what compiler version you expect.\r\n<h2 id=\"tab2\" >Commenting your Solidity code</h2>\r\nAdding comments to your code is an extra step that adds a professional look and feel to your Solidity code. A well-commented source code file is easier to read and understand and helps other developers quickly understand what your code is supposed to do. Even simple comments can cut down on the time required to fix bugs or add new functionality. Comments can also provide input for utilities to generate documentation for your smart contracts.\r\n\r\nYou can use single-line or multiline regular comments. Single-line comments start with two forward slashes. Multiline comments start with the <code>/*</code> characters and end with the <code>*/</code> characters. Here is an example of Solidity comments:\r\n<pre class=\"code\">// Here is a single line Solidity comment\r\n/* I have a lot more to say with this comment, so I’ll\r\nuse a multiline comment. The compiler will ignore\r\neverything after the opening comment characters, until\r\nit sees the closing comment characters. */</pre>\r\nA third type of Solidity comment is called the <em>Ethereum Natural Specification (NatSpec)</em> directive. You can use NatSpec to provide information about your code for documentation generators to use to create formatted documentation the describes your smart contracts. NatSpec directives start with three forward slashes and include special tags with data for the documentation. Here is an example of using NatSpec directives:\r\n<pre class=\"code\">/// @title Greeter smart contract\r\n/// @author Joe Programmer\r\n/// @notice This code takes a person's name and says hello\r\n/// @param name The name of the caller\r\n/// @return greeting The greeting with the caller's name</pre>\r\n<p class=\"article-tips tech\">Check out <a href=\"https://github.com/ethereum/wiki/wiki/Ethereum-Natural-Specification-Format\" target=\"_blank\" rel=\"noopener\">NatSpec documentation</a> for additional information.</p>\r\n\r\n<h2 id=\"tab3\" >Importing external code into your Ethereum smart contract</h2>\r\nThe import section is optional but can be powerful when used correctly in your <a href=\"https://www.dummies.com/personal-finance/ethereum-for-dummies-cheat-sheet/\" target=\"_blank\" rel=\"noopener\">Ethereum</a> smart contract. If your smart contract needs to refer to code in other files, you’ll have to import those other files first. Importing files makes it as though you copied the other code into the current file. Using imports helps you avoid actually copying code from one place to another. If you need to access code, just import the Solidity file that contains it.\r\n\r\nThe syntax for importing other files is simple. You use the <code>import</code> keyword and then provide the filename for the file you want to import. For example, to import the file myToken.sol, use this syntax:\r\n<pre class=\"code\">Import 'myToken.sol';</pre>\r\n<h2 id=\"tab4\" >Defining your Ethereum smart contracts</h2>\r\nIn the last main section of Solidity, you define the <a href=\"https://www.dummies.com/article/business-careers-money/personal-finance/cryptocurrency/ethereum-smart-contracts-tips-for-handling-data-in-solidity-263689/\" target=\"_blank\" rel=\"noopener\">contents of your smart contract</a>. It starts with the keyword <code>contract</code> and contains all of the functional code in your smart contract. You can have multiple <code>contract</code> sections in Solidity. That means a single .sol file can define multiple contracts. Here is an example <code>contract</code> section:\r\n<pre class=\"code\">contract HelloWorld {\r\nstring private helloMessage = \"Hello world\";\r\nfunction getHelloMessage() public view returns (string) {\r\nreturn helloMessage;\r\n}\r\n}</pre>\r\nInside the <code>contract</code> section is where you define all of your variables, structures, events, and functions. There's a lot more to the <code>contract</code> section of your code, but for now, you know how to set up a Solidity smart contract.\r\n\r\nOnce you master the basics of Solidity, you can continue to develop more complex code and the sky's the limit.","description":"If you plan to do any Ethereum development, you’ll likely be using Solidity, one of the most popular programming languages for smart contracts. Let’s take a look at some basic Solidity syntax. When you write Solidity source code, you save that code in a file with the extension .sol.\r\n\r\n[caption id=\"attachment_263815\" align=\"aligncenter\" width=\"535\"]<img class=\"wp-image-263815 size-full\" src=\"https://www.dummies.com/wp-content/uploads/ethereum-smart-contact-code.jpg\" alt=\"Ethereum smat contract code\" width=\"535\" height=\"385\" /> ©Shutterstock/polygraphus[/caption]\r\n\r\nA Solidity program has several main sections, as follows:\r\n<ul>\r\n \t<li><strong>Pragma:</strong> This tells Solidity what versions of the compiler are valid to compile this file.</li>\r\n \t<li><strong>Comments:</strong> Developers should use comments for documenting code.</li>\r\n \t<li><strong>Import:</strong> An import defines an external file that contains code that your smart contract needs.</li>\r\n \t<li><strong>Contract(s):</strong> This section is where the body of your smart contract code resides.</li>\r\n</ul>\r\n<h2 id=\"tab1\" >Declaring valid compiler version in Ethereum smart contracts</h2>\r\nThe <code>pragma</code> directive should be the first line of code in a Solidity file. Because the Solidity language is still maturing, it is common for new compiler versions to include changes that would fail to compile older programs. The <code>pragma</code> directive helps avoid compiler failures due to using a newer compiler.\r\n\r\nHere is the syntax for the <code>pragma</code> directive:\r\n<pre class=\"code\">pragma Solidity <<version number>>;</pre>\r\nHere is a sample <code>pragma</code> directive:\r\n<pre class=\"code\">pragma Solidity ^0.4.24;</pre>\r\n<p class=\"article-tips remember\">All statements in Solidity end with a semicolon.</p>\r\nThe version number starts with a 0, followed by a major build number and a minor build number. For example, the version number 0.4.24 refers to major build 4 and minor build 24. The caret symbol (^) before the version number tells Solidity that it can use the latest build in a major version range. In the preceding example, Solidity can use a compiler from any build in the version 4 build range. This is a way to tell readers that your program was written for 0.4.24 but will still compile for subsequent version 4 builds.\r\n\r\nAlthough using the caret in the <code>pragma</code> directive provides flexibility, it is a better practice to drop the caret and tell Solidity exactly what compiler version you expect.\r\n<h2 id=\"tab2\" >Commenting your Solidity code</h2>\r\nAdding comments to your code is an extra step that adds a professional look and feel to your Solidity code. A well-commented source code file is easier to read and understand and helps other developers quickly understand what your code is supposed to do. Even simple comments can cut down on the time required to fix bugs or add new functionality. Comments can also provide input for utilities to generate documentation for your smart contracts.\r\n\r\nYou can use single-line or multiline regular comments. Single-line comments start with two forward slashes. Multiline comments start with the <code>/*</code> characters and end with the <code>*/</code> characters. Here is an example of Solidity comments:\r\n<pre class=\"code\">// Here is a single line Solidity comment\r\n/* I have a lot more to say with this comment, so I’ll\r\nuse a multiline comment. The compiler will ignore\r\neverything after the opening comment characters, until\r\nit sees the closing comment characters. */</pre>\r\nA third type of Solidity comment is called the <em>Ethereum Natural Specification (NatSpec)</em> directive. You can use NatSpec to provide information about your code for documentation generators to use to create formatted documentation the describes your smart contracts. NatSpec directives start with three forward slashes and include special tags with data for the documentation. Here is an example of using NatSpec directives:\r\n<pre class=\"code\">/// @title Greeter smart contract\r\n/// @author Joe Programmer\r\n/// @notice This code takes a person's name and says hello\r\n/// @param name The name of the caller\r\n/// @return greeting The greeting with the caller's name</pre>\r\n<p class=\"article-tips tech\">Check out <a href=\"https://github.com/ethereum/wiki/wiki/Ethereum-Natural-Specification-Format\" target=\"_blank\" rel=\"noopener\">NatSpec documentation</a> for additional information.</p>\r\n\r\n<h2 id=\"tab3\" >Importing external code into your Ethereum smart contract</h2>\r\nThe import section is optional but can be powerful when used correctly in your <a href=\"https://www.dummies.com/personal-finance/ethereum-for-dummies-cheat-sheet/\" target=\"_blank\" rel=\"noopener\">Ethereum</a> smart contract. If your smart contract needs to refer to code in other files, you’ll have to import those other files first. Importing files makes it as though you copied the other code into the current file. Using imports helps you avoid actually copying code from one place to another. If you need to access code, just import the Solidity file that contains it.\r\n\r\nThe syntax for importing other files is simple. You use the <code>import</code> keyword and then provide the filename for the file you want to import. For example, to import the file myToken.sol, use this syntax:\r\n<pre class=\"code\">Import 'myToken.sol';</pre>\r\n<h2 id=\"tab4\" >Defining your Ethereum smart contracts</h2>\r\nIn the last main section of Solidity, you define the <a href=\"https://www.dummies.com/article/business-careers-money/personal-finance/cryptocurrency/ethereum-smart-contracts-tips-for-handling-data-in-solidity-263689/\" target=\"_blank\" rel=\"noopener\">contents of your smart contract</a>. It starts with the keyword <code>contract</code> and contains all of the functional code in your smart contract. You can have multiple <code>contract</code> sections in Solidity. That means a single .sol file can define multiple contracts. Here is an example <code>contract</code> section:\r\n<pre class=\"code\">contract HelloWorld {\r\nstring private helloMessage = \"Hello world\";\r\nfunction getHelloMessage() public view returns (string) {\r\nreturn helloMessage;\r\n}\r\n}</pre>\r\nInside the <code>contract</code> section is where you define all of your variables, structures, events, and functions. There's a lot more to the <code>contract</code> section of your code, but for now, you know how to set up a Solidity smart contract.\r\n\r\nOnce you master the basics of Solidity, you can continue to develop more complex code and the sky's the limit.","blurb":"","authors":[{"authorId":27199,"name":"Michael G. Solomon","slug":"michael-solomon","description":"Michael G. Solomon, PhD, is a professor at the University of the Cumberlands who specializes in courses on blockchain and distributed computing systems as well as computer security. He holds numerous security and project management certifications and has written several books on security and project management, including Ethereum For Dummies. ","_links":{"self":"https://dummies-api.dummies.com/v2/authors/27199"}}],"primaryCategoryTaxonomy":{"categoryId":34277,"title":"Cryptocurrency","slug":"cryptocurrency","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34277"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Declaring valid compiler version in Ethereum smart contracts","target":"#tab1"},{"label":"Commenting your Solidity code","target":"#tab2"},{"label":"Importing external code into your Ethereum smart contract","target":"#tab3"},{"label":"Defining your Ethereum smart contracts","target":"#tab4"}],"relatedArticles":{"fromBook":[{"articleId":263802,"title":"10 Free Ethereum Resources","slug":"10-free-ethereum-resources","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/263802"}},{"articleId":263715,"title":"Ethereum Basics: An Introduction to Smart Contracts and Solidity","slug":"ethereum-basics-an-introduction-to-smart-contracts-and-solidity","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/263715"}},{"articleId":263689,"title":"Ethereum Smart Contracts: Tips for Handling Data in Solidity","slug":"ethereum-smart-contracts-tips-for-handling-data-in-solidity","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/263689"}},{"articleId":263679,"title":"Top 10 Ethereum Uses","slug":"top-10-ethereum-uses","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/263679"}},{"articleId":263674,"title":"Different Types of Ethereum Wallets","slug":"different-types-of-ethereum-wallets","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/263674"}}],"fromCategory":[{"articleId":289714,"title":"Cryptocurrency All-in-One For Dummies Cheat Sheet","slug":"cryptocurrency-all-in-one-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/289714"}},{"articleId":289345,"title":"NFTs For Dummies Cheat Sheet","slug":"nfts-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/289345"}},{"articleId":266918,"title":"10 Types of Cryptocurrency Mining Resources","slug":"10-types-of-cryptocurrency-mining-resources","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266918"}},{"articleId":266912,"title":"What Is Pool Mining?","slug":"what-is-pool-mining","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266912"}},{"articleId":266907,"title":"What Is Cryptocurrency Mining?","slug":"what-is-cryptocurrency-mining","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266907"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":281698,"slug":"ethereum-for-dummies","isbn":"9781119474128","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"amazon":{"default":"https://www.amazon.com/gp/product/1119474124/ref=as_li_tl?ie=UTF8&tag=wiley01-20","ca":"https://www.amazon.ca/gp/product/1119474124/ref=as_li_tl?ie=UTF8&tag=wiley01-20","indigo_ca":"http://www.tkqlhce.com/click-9208661-13710633?url=https://www.chapters.indigo.ca/en-ca/books/product/1119474124-item.html&cjsku=978111945484","gb":"https://www.amazon.co.uk/gp/product/1119474124/ref=as_li_tl?ie=UTF8&tag=wiley01-20","de":"https://www.amazon.de/gp/product/1119474124/ref=as_li_tl?ie=UTF8&tag=wiley01-20"},"image":{"src":"https://www.dummies.com/wp-content/uploads/ethereum-for-dummies-cover-9781119474128-203x255.jpg","width":203,"height":255},"title":"Ethereum For Dummies","testBankPinActivationLink":"","bookOutOfPrint":false,"authorsInfo":"<p><b data-author-id=\"34832\">Michael G. Solomon, PhD,</b> is a full-time security, privacy, blockchain, and data science expert. An active speaker, consultant, and author, Michael is a professor of cybersecurity and global business with blockchain technology at the University of the Cumberlands. He has written more than 20 books on IT, security, and the PMP exam. </p>","authors":[{"authorId":34832,"name":"Michael G. Solomon","slug":"michael-g-solomon","description":" <p><b>Kiana Danial</b> is an investment trainer and consultant as well as the author of <i>Cryptocurrency Investing For Dummies.</i></p> <p><b>Peter Kent</b> is a veteran technology author. <b>Tyler Bain </b>is a Certified Bitcoin Professional. Peter and Tyler are co-authors of <i>Cryptocurrency Mining For Dummies</i>. <b>Tiana Laurence </b>heads her own venture capital firm and is author of <i>Blockchain For Dummies</i>, 2nd Edition. <b>Michael G. Solomon, PhD,</b> is a professor of Computer Information Sciences as well as author of <i>Ethereum For Dummies</i>.</p>","_links":{"self":"https://dummies-api.dummies.com/v2/authors/34832"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;cryptocurrency&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119474128&quot;]}]\" id=\"du-slot-62df2ec4f2457\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;cryptocurrency&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781119474128&quot;]}]\" id=\"du-slot-62df2ec4f2dce\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"One year","lifeExpectancySetFrom":"2022-07-25T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":263811},{"headers":{"creationTime":"2017-07-31T19:28:55+00:00","modifiedTime":"2022-07-25T18:27:17+00:00","timestamp":"2022-07-26T00:01:08+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Cryptocurrency","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34277"},"slug":"cryptocurrency","categoryId":34277}],"title":"How Blockchains Work","strippedTitle":"how blockchains work","slug":"what-is-blockchain-and-what-blockchains-are","canonicalUrl":"","seo":{"metaDescription":"Blockchains are data structures. In this article, learn how they work and the different types of blockchain applications.","noIndex":0,"noFollow":0},"content":"Originally, <em>blockchain</em> was just the computer science term for how to structure and share data. Today, <a href=\"https://www.dummies.com/personal-finance/what-blockchains-do/\" target=\"_blank\" rel=\"noopener\">blockchains</a> are hailed the \"fifth evolution\" of computing. Blockchains are a novel approach to the distributed database. The innovation comes from incorporating old technology in new ways. You can think of blockchains as distributed databases that a group of individuals controls and that store and share information.\r\n\r\nThere are many different types of blockchains and blockchain applications. Blockchain is an all-encompassing technology that is integrating across platforms and hardware all over the world.\r\n\r\nA blockchain is a data structure that makes it possible to create a digital ledger of data and share it among a network of independent parties. There are many different types of blockchains.\r\n<ul>\r\n \t<li><strong>Public blockchains:</strong> Public blockchains, such as Bitcoin, are large distributed networks that are run through a native token. They're open for anyone to participate at any level and have open-source code that their community maintains.</li>\r\n \t<li><strong>Permissioned blockchains:</strong> Permissioned blockchains, such as Ripple, control roles that individuals can play within the network. They're still large and distributed systems that use a native token. Their core code may or may not be open source.</li>\r\n \t<li><strong>Private blockchains:</strong> Private blockchains tend to be smaller and do not utilize a token. Their membership is closely controlled. These types of blockchains are favored by consortiums that have trusted members and trade confidential information.</li>\r\n</ul>\r\nAll three types of blockchains use cryptography to allow each participant on any given network to manage the ledger in a secure way without the need for a central authority to enforce the rules. The removal of central authority from database structure is one of the most important and powerful aspects of blockchains.\r\n\r\nThe figure shows the concept of <a href=\"https://www.dummies.com/article/business-careers-money/personal-finance/cryptocurrency/the-structure-of-blockchains-242804/\" target=\"_blank\" rel=\"noopener\">how blockchains come to agreement</a>.\r\n\r\n[caption id=\"attachment_242784\" align=\"aligncenter\" width=\"535\"]<a href=\"https://www.dummies.com/wp-content/uploads/blockchain-transaction.jpg\"><img class=\"wp-image-242784 size-full\" src=\"https://www.dummies.com/wp-content/uploads/blockchain-transaction.jpg\" alt=\"blockchain-transaction\" width=\"535\" height=\"250\" /></a> How blockchains work.[/caption]\r\n<p class=\"article-tips remember\">Blockchains create permanent records and histories of transactions, but nothing is really permanent. The permanence of the record is based on the permanence of the network. In the context of blockchains, this means that a large portion of a blockchain community would all have to agree to change the information and are incentivized not to change the data.</p>\r\nWhen data is recorded in a blockchain, it's extremely difficult to change or remove it. When someone wants to add a record to a blockchain, also called a <em>transaction</em> or an <em>entry,</em> users in the network who have validation control verify the proposed transaction. This is where things get tricky because every blockchain has a slightly different spin on how this should work and who can validate a transaction.","description":"Originally, <em>blockchain</em> was just the computer science term for how to structure and share data. Today, <a href=\"https://www.dummies.com/personal-finance/what-blockchains-do/\" target=\"_blank\" rel=\"noopener\">blockchains</a> are hailed the \"fifth evolution\" of computing. Blockchains are a novel approach to the distributed database. The innovation comes from incorporating old technology in new ways. You can think of blockchains as distributed databases that a group of individuals controls and that store and share information.\r\n\r\nThere are many different types of blockchains and blockchain applications. Blockchain is an all-encompassing technology that is integrating across platforms and hardware all over the world.\r\n\r\nA blockchain is a data structure that makes it possible to create a digital ledger of data and share it among a network of independent parties. There are many different types of blockchains.\r\n<ul>\r\n \t<li><strong>Public blockchains:</strong> Public blockchains, such as Bitcoin, are large distributed networks that are run through a native token. They're open for anyone to participate at any level and have open-source code that their community maintains.</li>\r\n \t<li><strong>Permissioned blockchains:</strong> Permissioned blockchains, such as Ripple, control roles that individuals can play within the network. They're still large and distributed systems that use a native token. Their core code may or may not be open source.</li>\r\n \t<li><strong>Private blockchains:</strong> Private blockchains tend to be smaller and do not utilize a token. Their membership is closely controlled. These types of blockchains are favored by consortiums that have trusted members and trade confidential information.</li>\r\n</ul>\r\nAll three types of blockchains use cryptography to allow each participant on any given network to manage the ledger in a secure way without the need for a central authority to enforce the rules. The removal of central authority from database structure is one of the most important and powerful aspects of blockchains.\r\n\r\nThe figure shows the concept of <a href=\"https://www.dummies.com/article/business-careers-money/personal-finance/cryptocurrency/the-structure-of-blockchains-242804/\" target=\"_blank\" rel=\"noopener\">how blockchains come to agreement</a>.\r\n\r\n[caption id=\"attachment_242784\" align=\"aligncenter\" width=\"535\"]<a href=\"https://www.dummies.com/wp-content/uploads/blockchain-transaction.jpg\"><img class=\"wp-image-242784 size-full\" src=\"https://www.dummies.com/wp-content/uploads/blockchain-transaction.jpg\" alt=\"blockchain-transaction\" width=\"535\" height=\"250\" /></a> How blockchains work.[/caption]\r\n<p class=\"article-tips remember\">Blockchains create permanent records and histories of transactions, but nothing is really permanent. The permanence of the record is based on the permanence of the network. In the context of blockchains, this means that a large portion of a blockchain community would all have to agree to change the information and are incentivized not to change the data.</p>\r\nWhen data is recorded in a blockchain, it's extremely difficult to change or remove it. When someone wants to add a record to a blockchain, also called a <em>transaction</em> or an <em>entry,</em> users in the network who have validation control verify the proposed transaction. This is where things get tricky because every blockchain has a slightly different spin on how this should work and who can validate a transaction.","blurb":"","authors":[{"authorId":11136,"name":"Tiana Laurence","slug":"tiana-laurence","description":" <p><b>Kiana Danial</b> is an investment trainer and consultant as well as the author of <i>Cryptocurrency Investing For Dummies.</i></p> <p><b>Peter Kent</b> is a veteran technology author. <b>Tyler Bain </b>is a Certified Bitcoin Professional. Peter and Tyler are co-authors of <i>Cryptocurrency Mining For Dummies</i>. <b>Tiana Laurence </b>heads her own venture capital firm and is author of <i>Blockchain For Dummies</i>, 2nd Edition. <b>Michael G. Solomon, PhD,</b> is a professor of Computer Information Sciences as well as author of <i>Ethereum For Dummies</i>.</p>","_links":{"self":"https://dummies-api.dummies.com/v2/authors/11136"}}],"primaryCategoryTaxonomy":{"categoryId":34277,"title":"Cryptocurrency","slug":"cryptocurrency","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34277"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[],"fromCategory":[{"articleId":289714,"title":"Cryptocurrency All-in-One For Dummies Cheat Sheet","slug":"cryptocurrency-all-in-one-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/289714"}},{"articleId":289345,"title":"NFTs For Dummies Cheat Sheet","slug":"nfts-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/289345"}},{"articleId":266918,"title":"10 Types of Cryptocurrency Mining Resources","slug":"10-types-of-cryptocurrency-mining-resources","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266918"}},{"articleId":266912,"title":"What Is Pool Mining?","slug":"what-is-pool-mining","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266912"}},{"articleId":266907,"title":"What Is Cryptocurrency Mining?","slug":"what-is-cryptocurrency-mining","categoryList":["business-careers-money","personal-finance","cryptocurrency"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/266907"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":0,"slug":null,"isbn":null,"categoryList":null,"amazon":null,"image":null,"title":null,"testBankPinActivationLink":null,"bookOutOfPrint":false,"authorsInfo":null,"authors":null,"_links":null},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;cryptocurrency&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[null]}]\" id=\"du-slot-62df2ec46f8b0\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;cryptocurrency&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[null]}]\" id=\"du-slot-62df2ec47012f\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Advance","lifeExpectancy":"One year","lifeExpectancySetFrom":"2022-07-25T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":242782},{"headers":{"creationTime":"2016-03-26T07:56:42+00:00","modifiedTime":"2022-07-19T18:26:51+00:00","timestamp":"2022-07-20T00:01:08+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Social Security","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34309"},"slug":"social-security","categoryId":34309}],"title":"How to Estimate How Much Social Security You’ll Get Each Month","strippedTitle":"how to estimate how much social security you’ll get each month","slug":"how-to-estimate-how-much-social-security-youll-get-each-month","canonicalUrl":"","seo":{"metaDescription":"Copyright © 2015 AARPAfter you figure out your full retirement age, you can get a ballpark idea of your monthly benefit. Currently, the average retirement benef","noIndex":0,"noFollow":0},"content":"Copyright © 2015 AARP\r\n\r\nAfter you figure out your full retirement age, you can get a ballpark idea of your monthly benefit. Currently, the average retirement benefit is about $1,328 per month (in January 2015), but benefits go much higher, depending on your earnings history and when you begin collecting.\r\n<p class=\"Tip\">It’s easy to get at least a rough estimate of your retirement benefits. Just use one of the SSA’s online calculators — the <a href=\"http://www.ssa.gov/oact/quickcalc\">Social Security Quick Calculator</a> or the <a href=\"http://www.ssa.gov/estimator\">Retirement Estimator</a>. The Retirement Estimator is especially useful, because it also gives you projected amounts for retiring early at 62, waiting for the full retirement age, or delaying all the way until 70. (You also can get estimates customized to your personal situation by using <a href=\"https://www.aarp.org/retirement/social-security/benefits-calculator.html\">AARP’s Social Security Benefits Calculator</a>.)</p>\r\nIf you use the SSA’s Retirement Estimator, you’ll see roughly how much Social Security you could get, especially if your earnings don’t skyrocket or crash between now and the time you retire. If you haven’t yet done so, you can use the Retirement Estimator as a starting point to think about how much money you can count on in retirement.\r\n<p class=\"Remember\">Whether the Social Security numbers look small, large, or in between, remember that Social Security is meant to be just <i>one part</i> of your financial foundation.</p>\r\nYou stand to get much more money if you can delay collecting Social Security past your full retirement age. For example, if you were born between 1943 and 1954, your Social Security payment at 62 is 25percent lower than if you wait until 66 (your full retirement age). If you hold off to age 70 — four years past your full retirement age — the benefit balloons by 32 percent.\r\n\r\nThese differences can add up to real money over the years — or decades. Consider the following example:\r\n\r\nElisa was born in 1953 and wants to know how she would be affected by choosing different dates to retire. She goes to the <a href=\"http://www.ssa.gov/estimator\">Retirement Estimator tool</a> and quickly types in some basic information, including her name, Social Security number, state of birth, and mother’s maiden name. She also plugs in the $160,000 she earned last year. The Retirement Estimator lists the estimated payments she would get for retiring at three different ages.\r\n\r\nIf Elisa waits until her full retirement age of 66, she’ll get about $2,615 per month. If she waits until 70 to collect benefits, she’ll get about $3,512 per month. And if she wants to start as soon as possible, at 62, she’ll get a more modest $1,930 per month.\r\n\r\nElisa knows that longevity runs in her family, so she wants to find out how much she’ll collect from Social Security if she lives to 90. To get the answer, she calculates the number of months she would receive benefits in three different cases — starting at 62 (336 months), starting at 66 (288 months), and starting at 70 (240 months). Then she multiplies the number of months by the estimated benefit provided by the online tool.\r\n\r\nIf Elisa starts the benefit at 62 and lives to 90, she could end up with more than $648,000 over her lifetime, not even counting increases for inflation (336 months between 62 and 90, multiplied by the estimated benefit of $1,930 per month for benefits starting at 62). If she starts at 66, her lifetime collection would exceed $753,000. And if she starts the benefit at 70, she ends up with more than $842,880. The difference between starting benefits at 62 and at 70 comes to $194,400 for Elisa.\r\n\r\nYour decision on when to begin retirement benefits makes a real difference in your monthly income. The numbers here are based on a retirement age of 66 and a monthly benefit of $1,000. They may differ based on your year of birth and other factors.\r\n<div class=\"imageBlock\" style=\"width: 535px;\">\r\n\r\n<img src=\"https://www.dummies.com/wp-content/uploads/474779.image0.jpg\" alt=\"Changes on Social Security benefits people get based on the age they start receiving them.\" width=\"535\" height=\"342\" />\r\n<div class=\"imageCredit\">Credit: Source: Social Security Administration</div>\r\n</div>\r\n<p class=\"Tip\">Waiting to take retirement benefits beyond your full retirement age could prove especially important for Baby Boomers and, right behind them on the age ladder, members of Generation X. For people born in 1943 or later, the retirement benefit expands at a rate of 8 percent per year (or 2⁄3 of 1 percent per month) for each year you delay claiming (up to age 70) after reaching full retirement age.</p>\r\n\r\n<table>\r\n<tbody>\r\n<tr>\r\n<th>Year of Birth</th>\r\n<th>Yearly Rate of Increase</th>\r\n<th>Monthly Rate of Increase</th>\r\n</tr>\r\n<tr>\r\n<td>1933–1934</td>\r\n<td>5.5 percent</td>\r\n<td>11⁄24 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1935–1936</td>\r\n<td>6.0 percent</td>\r\n<td>1⁄2 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1937–1938</td>\r\n<td>6.5 percent</td>\r\n<td>13⁄24 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1939–1940</td>\r\n<td>7.0 percent</td>\r\n<td>7⁄12 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1941–1942</td>\r\n<td>7.5 percent</td>\r\n<td>5⁄8 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1943 or later</td>\r\n<td>8.0 percent</td>\r\n<td>2⁄3 of 1%</td>\r\n</tr>\r\n</tbody>\r\n</table>\r\n<p class=\"Tip\">If you were born on January 1, refer to the previous year.</p>","description":"Copyright © 2015 AARP\r\n\r\nAfter you figure out your full retirement age, you can get a ballpark idea of your monthly benefit. Currently, the average retirement benefit is about $1,328 per month (in January 2015), but benefits go much higher, depending on your earnings history and when you begin collecting.\r\n<p class=\"Tip\">It’s easy to get at least a rough estimate of your retirement benefits. Just use one of the SSA’s online calculators — the <a href=\"http://www.ssa.gov/oact/quickcalc\">Social Security Quick Calculator</a> or the <a href=\"http://www.ssa.gov/estimator\">Retirement Estimator</a>. The Retirement Estimator is especially useful, because it also gives you projected amounts for retiring early at 62, waiting for the full retirement age, or delaying all the way until 70. (You also can get estimates customized to your personal situation by using <a href=\"https://www.aarp.org/retirement/social-security/benefits-calculator.html\">AARP’s Social Security Benefits Calculator</a>.)</p>\r\nIf you use the SSA’s Retirement Estimator, you’ll see roughly how much Social Security you could get, especially if your earnings don’t skyrocket or crash between now and the time you retire. If you haven’t yet done so, you can use the Retirement Estimator as a starting point to think about how much money you can count on in retirement.\r\n<p class=\"Remember\">Whether the Social Security numbers look small, large, or in between, remember that Social Security is meant to be just <i>one part</i> of your financial foundation.</p>\r\nYou stand to get much more money if you can delay collecting Social Security past your full retirement age. For example, if you were born between 1943 and 1954, your Social Security payment at 62 is 25percent lower than if you wait until 66 (your full retirement age). If you hold off to age 70 — four years past your full retirement age — the benefit balloons by 32 percent.\r\n\r\nThese differences can add up to real money over the years — or decades. Consider the following example:\r\n\r\nElisa was born in 1953 and wants to know how she would be affected by choosing different dates to retire. She goes to the <a href=\"http://www.ssa.gov/estimator\">Retirement Estimator tool</a> and quickly types in some basic information, including her name, Social Security number, state of birth, and mother’s maiden name. She also plugs in the $160,000 she earned last year. The Retirement Estimator lists the estimated payments she would get for retiring at three different ages.\r\n\r\nIf Elisa waits until her full retirement age of 66, she’ll get about $2,615 per month. If she waits until 70 to collect benefits, she’ll get about $3,512 per month. And if she wants to start as soon as possible, at 62, she’ll get a more modest $1,930 per month.\r\n\r\nElisa knows that longevity runs in her family, so she wants to find out how much she’ll collect from Social Security if she lives to 90. To get the answer, she calculates the number of months she would receive benefits in three different cases — starting at 62 (336 months), starting at 66 (288 months), and starting at 70 (240 months). Then she multiplies the number of months by the estimated benefit provided by the online tool.\r\n\r\nIf Elisa starts the benefit at 62 and lives to 90, she could end up with more than $648,000 over her lifetime, not even counting increases for inflation (336 months between 62 and 90, multiplied by the estimated benefit of $1,930 per month for benefits starting at 62). If she starts at 66, her lifetime collection would exceed $753,000. And if she starts the benefit at 70, she ends up with more than $842,880. The difference between starting benefits at 62 and at 70 comes to $194,400 for Elisa.\r\n\r\nYour decision on when to begin retirement benefits makes a real difference in your monthly income. The numbers here are based on a retirement age of 66 and a monthly benefit of $1,000. They may differ based on your year of birth and other factors.\r\n<div class=\"imageBlock\" style=\"width: 535px;\">\r\n\r\n<img src=\"https://www.dummies.com/wp-content/uploads/474779.image0.jpg\" alt=\"Changes on Social Security benefits people get based on the age they start receiving them.\" width=\"535\" height=\"342\" />\r\n<div class=\"imageCredit\">Credit: Source: Social Security Administration</div>\r\n</div>\r\n<p class=\"Tip\">Waiting to take retirement benefits beyond your full retirement age could prove especially important for Baby Boomers and, right behind them on the age ladder, members of Generation X. For people born in 1943 or later, the retirement benefit expands at a rate of 8 percent per year (or 2⁄3 of 1 percent per month) for each year you delay claiming (up to age 70) after reaching full retirement age.</p>\r\n\r\n<table>\r\n<tbody>\r\n<tr>\r\n<th>Year of Birth</th>\r\n<th>Yearly Rate of Increase</th>\r\n<th>Monthly Rate of Increase</th>\r\n</tr>\r\n<tr>\r\n<td>1933–1934</td>\r\n<td>5.5 percent</td>\r\n<td>11⁄24 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1935–1936</td>\r\n<td>6.0 percent</td>\r\n<td>1⁄2 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1937–1938</td>\r\n<td>6.5 percent</td>\r\n<td>13⁄24 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1939–1940</td>\r\n<td>7.0 percent</td>\r\n<td>7⁄12 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1941–1942</td>\r\n<td>7.5 percent</td>\r\n<td>5⁄8 of 1%</td>\r\n</tr>\r\n<tr>\r\n<td>1943 or later</td>\r\n<td>8.0 percent</td>\r\n<td>2⁄3 of 1%</td>\r\n</tr>\r\n</tbody>\r\n</table>\r\n<p class=\"Tip\">If you were born on January 1, refer to the previous year.</p>","blurb":"","authors":[{"authorId":9147,"name":"Jonathan Peterson","slug":"jonathan-peterson","description":" <p><b>Jonathan Peterson</b> is a former executive communications director at AARP and an award&#45;winning journalist. His interest in Social Security began when he covered the political debate that led to major reforms in 1983. He is a former economics and politics correspondent for the <i>Los Angeles Times</i>. ","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9147"}}],"primaryCategoryTaxonomy":{"categoryId":34309,"title":"Social Security","slug":"social-security","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34309"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[],"relatedArticles":{"fromBook":[],"fromCategory":[{"articleId":274600,"title":"When Is the Right Time to Claim Social Security Benefits?","slug":"when-is-the-right-time-to-claim-social-security-benefits","categoryList":["business-careers-money","personal-finance","social-security"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/274600"}},{"articleId":248084,"title":"10 Myths About Social Security","slug":"10-myths-about-social-security","categoryList":["business-careers-money","personal-finance","social-security"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/248084"}},{"articleId":208358,"title":"Social Security For Dummies Cheat Sheet","slug":"social-security-for-dummies-cheat-sheet","categoryList":["business-careers-money","personal-finance","social-security"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/208358"}},{"articleId":201419,"title":"Returning to Work after Retirement: Social Security Benefit Reduction?","slug":"returning-to-work-after-retirement-social-security-benefit-reduction","categoryList":["business-careers-money","personal-finance","social-security"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/201419"}},{"articleId":193695,"title":"Carefully Timing the Start of Your Social Security Benefits","slug":"carefully-timing-the-start-of-your-social-security-benefits","categoryList":["business-careers-money","personal-finance","social-security"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/193695"}}]},"hasRelatedBookFromSearch":false,"relatedBook":{"bookId":0,"slug":null,"isbn":null,"categoryList":null,"amazon":null,"image":null,"title":null,"testBankPinActivationLink":null,"bookOutOfPrint":false,"authorsInfo":null,"authors":null,"_links":null},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;social-security&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[null]}]\" id=\"du-slot-62d745c4165d4\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;social-security&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[null]}]\" id=\"du-slot-62d745c416e60\"></div></div>"},"articleType":{"articleType":"Articles","articleList":null,"content":null,"videoInfo":{"videoId":null,"name":null,"accountId":null,"playerId":null,"thumbnailUrl":null,"description":null,"uploadDate":null}},"sponsorship":{"sponsorshipPage":false,"backgroundImage":{"src":null,"width":0,"height":0},"brandingLine":"","brandingLink":"","brandingLogo":{"src":null,"width":0,"height":0},"sponsorAd":"","sponsorEbookTitle":"","sponsorEbookLink":"","sponsorEbookImage":{"src":null,"width":0,"height":0}},"primaryLearningPath":"Solve","lifeExpectancy":"Two years","lifeExpectancySetFrom":"2022-07-19T00:00:00+00:00","dummiesForKids":"no","sponsoredContent":"no","adInfo":"","adPairKey":[]},"status":"publish","visibility":"public","articleId":143703},{"headers":{"creationTime":"2016-03-26T12:51:55+00:00","modifiedTime":"2022-07-19T18:17:11+00:00","timestamp":"2022-07-20T00:01:08+00:00"},"data":{"breadcrumbs":[{"name":"Business, Careers, & Money","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34224"},"slug":"business-careers-money","categoryId":34224},{"name":"Personal Finance","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34273"},"slug":"personal-finance","categoryId":34273},{"name":"Loans & Credit","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34301"},"slug":"loans-credit","categoryId":34301},{"name":"Credit Reports","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34304"},"slug":"credit-reports","categoryId":34304}],"title":"How to Qualify for First-Time Cards and Lending","strippedTitle":"how to qualify for first-time cards and lending","slug":"how-to-qualify-for-first-time-cards-and-lending","canonicalUrl":"","seo":{"metaDescription":"Credit impacts two major and basic consumer credit instruments that most people need when they get started on life’s journey: credit cards and loans. You may th","noIndex":0,"noFollow":0},"content":"Credit impacts two major and basic consumer credit instruments that most people need when they get started on life’s journey: credit cards and loans. You may think that you know how these instruments work, but things have changed because of regulations like the CARD Act and the financial meltdown that threatened banks with failure due in large part to lax underwriting standards.\r\n<h2 id=\"tab1\" >Getting a credit card</h2>\r\nGetting credit for the first time used to be easy. All you had to do was drive to your nearest gas station and fill out an application for a gas card and then wait for the mail to arrive with your new plastic. If you were a city dweller, the trip may have been on foot to a department store, which would often grant credit on the spot.\r\n\r\nBoth types of credit were relatively easy to get, and they reported your credit history to the three bureaus so that you built a credit history quickly. More and more department store and gas cards are tightening their standards to reflect tightened credit conditions.\r\n<p class=\"Remember\">You can try for cards issued by banks that use a national transaction network such as Visa. Though these cards are more versatile and powerful than their earlier counterparts, they’re also harder to get. Getting that first card now requires a new approach.</p>\r\nTo begin with, you need a credit history. But how do you get a credit history without credit? Two of the most popular ways are to use someone else’s credit or to use a secured credit card.\r\n<h2 id=\"tab2\" >Use other people’s credit</h2>\r\nIn most instances, when you use another person’s credit, the other person is a family member or a person with whom you have an emotional attachment. Why? Because using someone else’s credit can be dangerous to that person if you mess up. Only someone who really likes you is willing to risk helping you get started.\r\n\r\nYou can piggyback on another person’s credit in two ways. The most popular way is to be added to the person’s account as an authorized user. The other way is to have the person cosign for you.\r\n<h2 id=\"tab3\" >Become an authorized user</h2>\r\nBeing named an <i>authorized user</i> on someone’s credit account enables you to have his or her credit history reported on your credit report while you use a card for which the other person is solely financially responsible. The card statement goes to the account owner, she pays the credit card company, you pay the card owner, and the card’s credit history is reported in both your and the owner’s files.\r\n\r\nProblems with this approach can arise if the account owner defaults or is late with payments, because then those negative marks go on your credit history, too. Another common pitfall is that you overcharge and the account owner has to ask you for more money than you have available, which can cause a rift between you.\r\n<h2 id=\"tab4\" >Cosigners</h2>\r\nCosigning on an account is more often than not a recipe for disaster, and it’s not usually recommended. The cosigner’s credit history doesn’t show up on your credit report. Instead, all that shows up is your own payment history. The statement for a cosigned account doesn’t go to the cosigner, so unless you share the information, the cosigner has no idea what’s happening to the account.\r\n\r\nOften, the cosigner first hears of a problem when a collector calls and demands an overdue payment. Unfortunately, if you make late payments, the delinquency history appears on the cosigner’s credit report, and negative information stays on the cosigner’s credit history for a full seven years.\r\n\r\nIf you decide to go the cosigning route, its’ a good idea to commit to paying this bill before almost any other. You also need to have the courage to keep your cosigner informed of any changes in your financial picture, especially if you may be late on a payment.\r\n<h2 id=\"tab5\" >Using secured cards</h2>\r\nA secured card looks and works just like a credit card but is backed by a cash deposit at the bank that issues the card. Typically, your deposit qualifies you for a credit card with a limit equal to that deposit amount.\r\n\r\nAs a result, limits on secured cards tend to be low, but the real value here is to establish a credit history so that you can get an unsecured card and reallocate your deposit to a better purpose, like your emergency savings account.\r\n<p class=\"Tip\">You can find and compare secured cards on a number of websites. Two good sources include <a href=\"http://Bankrate.com\">Bankrate.com</a> and <a href=\"http://www.creditcards.com\">Creditcards.com</a>. You want to balance services, fees, and interest rates to find the best card for you.</p>\r\n\r\n<h2 id=\"tab6\" >Use savings for credit</h2>\r\nMost banks are happy to lend you your own money. If you accumulate some savings in a passbook account, you can use the savings to secure an installment loan of the same or a lesser amount. With 100 percent collateral in cash for the loan, the interest rate should be very low. Make sure that the loan is reported to the credit bureaus so that you build your credit.","description":"Credit impacts two major and basic consumer credit instruments that most people need when they get started on life’s journey: credit cards and loans. You may think that you know how these instruments work, but things have changed because of regulations like the CARD Act and the financial meltdown that threatened banks with failure due in large part to lax underwriting standards.\r\n<h2 id=\"tab1\" >Getting a credit card</h2>\r\nGetting credit for the first time used to be easy. All you had to do was drive to your nearest gas station and fill out an application for a gas card and then wait for the mail to arrive with your new plastic. If you were a city dweller, the trip may have been on foot to a department store, which would often grant credit on the spot.\r\n\r\nBoth types of credit were relatively easy to get, and they reported your credit history to the three bureaus so that you built a credit history quickly. More and more department store and gas cards are tightening their standards to reflect tightened credit conditions.\r\n<p class=\"Remember\">You can try for cards issued by banks that use a national transaction network such as Visa. Though these cards are more versatile and powerful than their earlier counterparts, they’re also harder to get. Getting that first card now requires a new approach.</p>\r\nTo begin with, you need a credit history. But how do you get a credit history without credit? Two of the most popular ways are to use someone else’s credit or to use a secured credit card.\r\n<h2 id=\"tab2\" >Use other people’s credit</h2>\r\nIn most instances, when you use another person’s credit, the other person is a family member or a person with whom you have an emotional attachment. Why? Because using someone else’s credit can be dangerous to that person if you mess up. Only someone who really likes you is willing to risk helping you get started.\r\n\r\nYou can piggyback on another person’s credit in two ways. The most popular way is to be added to the person’s account as an authorized user. The other way is to have the person cosign for you.\r\n<h2 id=\"tab3\" >Become an authorized user</h2>\r\nBeing named an <i>authorized user</i> on someone’s credit account enables you to have his or her credit history reported on your credit report while you use a card for which the other person is solely financially responsible. The card statement goes to the account owner, she pays the credit card company, you pay the card owner, and the card’s credit history is reported in both your and the owner’s files.\r\n\r\nProblems with this approach can arise if the account owner defaults or is late with payments, because then those negative marks go on your credit history, too. Another common pitfall is that you overcharge and the account owner has to ask you for more money than you have available, which can cause a rift between you.\r\n<h2 id=\"tab4\" >Cosigners</h2>\r\nCosigning on an account is more often than not a recipe for disaster, and it’s not usually recommended. The cosigner’s credit history doesn’t show up on your credit report. Instead, all that shows up is your own payment history. The statement for a cosigned account doesn’t go to the cosigner, so unless you share the information, the cosigner has no idea what’s happening to the account.\r\n\r\nOften, the cosigner first hears of a problem when a collector calls and demands an overdue payment. Unfortunately, if you make late payments, the delinquency history appears on the cosigner’s credit report, and negative information stays on the cosigner’s credit history for a full seven years.\r\n\r\nIf you decide to go the cosigning route, its’ a good idea to commit to paying this bill before almost any other. You also need to have the courage to keep your cosigner informed of any changes in your financial picture, especially if you may be late on a payment.\r\n<h2 id=\"tab5\" >Using secured cards</h2>\r\nA secured card looks and works just like a credit card but is backed by a cash deposit at the bank that issues the card. Typically, your deposit qualifies you for a credit card with a limit equal to that deposit amount.\r\n\r\nAs a result, limits on secured cards tend to be low, but the real value here is to establish a credit history so that you can get an unsecured card and reallocate your deposit to a better purpose, like your emergency savings account.\r\n<p class=\"Tip\">You can find and compare secured cards on a number of websites. Two good sources include <a href=\"http://Bankrate.com\">Bankrate.com</a> and <a href=\"http://www.creditcards.com\">Creditcards.com</a>. You want to balance services, fees, and interest rates to find the best card for you.</p>\r\n\r\n<h2 id=\"tab6\" >Use savings for credit</h2>\r\nMost banks are happy to lend you your own money. If you accumulate some savings in a passbook account, you can use the savings to secure an installment loan of the same or a lesser amount. With 100 percent collateral in cash for the loan, the interest rate should be very low. Make sure that the loan is reported to the credit bureaus so that you build your credit.","blurb":"","authors":[{"authorId":9218,"name":"Steve Bucci","slug":"steve-bucci","description":"","_links":{"self":"https://dummies-api.dummies.com/v2/authors/9218"}}],"primaryCategoryTaxonomy":{"categoryId":34304,"title":"Credit Reports","slug":"credit-reports","_links":{"self":"https://dummies-api.dummies.com/v2/categories/34304"}},"secondaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"tertiaryCategoryTaxonomy":{"categoryId":0,"title":null,"slug":null,"_links":null},"trendingArticles":null,"inThisArticle":[{"label":"Getting a credit card","target":"#tab1"},{"label":"Use other people’s credit","target":"#tab2"},{"label":"Become an authorized user","target":"#tab3"},{"label":"Cosigners","target":"#tab4"},{"label":"Using secured cards","target":"#tab5"},{"label":"Use savings for credit","target":"#tab6"}],"relatedArticles":{"fromBook":[{"articleId":155126,"title":"What 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Score","slug":"8-tips-for-a-top-credit-score","categoryList":["business-careers-money","personal-finance","loans-credit","credit-reports"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/155125"}},{"articleId":155082,"title":"Contacting the Big-Three Credit Bureaus for Your Credit Report","slug":"contacting-the-big-three-credit-bureaus-for-your-credit-report","categoryList":["business-careers-money","personal-finance","loans-credit","credit-reports"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/155082"}}],"fromCategory":[{"articleId":275982,"title":"The CARD Act: Shielding You from Credit Card Abuse","slug":"the-card-act-shielding-you-from-credit-card-abuse","categoryList":["business-careers-money","personal-finance","loans-credit","credit-reports"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275982"}},{"articleId":275979,"title":"10 Consumer Credit Protections Everyone Needs to Know","slug":"10-consumer-credit-protections-everyone-needs-to-know","categoryList":["business-careers-money","personal-finance","loans-credit","credit-reports"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275979"}},{"articleId":275976,"title":"10 Ways to Deal with a Mortgage Meltdown","slug":"10-ways-to-deal-with-a-mortgage-meltdown","categoryList":["business-careers-money","personal-finance","loans-credit","credit-reports"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275976"}},{"articleId":275970,"title":"How Your Actions Impact Your Credit Score","slug":"how-your-actions-impact-your-credit-score","categoryList":["business-careers-money","personal-finance","loans-credit","credit-reports"],"_links":{"self":"https://dummies-api.dummies.com/v2/articles/275970"}},{"articleId":275965,"title":"Going Green: Treating Credit as a Renewable 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Bucci","slug":"stephen-r-bucci","description":"Steve Bucci, BA, MA, is a personal finance expert and a nationally syndicated columnist whose column is carried by the financial megasite Bankrate.com. Bucci served as president of several nonprofit organizations dedicated to helping the consumer wisely use credit. These include the Consumer Credit Counseling Service (CCCS) of Rhode Island, the CCCS of Southern New England, and the Money Management International Financial Education Foundation.","_links":{"self":"https://dummies-api.dummies.com/v2/authors/10481"}}],"_links":{"self":"https://dummies-api.dummies.com/v2/books/"}},"collections":[],"articleAds":{"footerAd":"<div class=\"du-ad-region row\" id=\"article_page_adhesion_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_adhesion_ad\" data-refreshed=\"false\" \r\n data-target = \"[{&quot;key&quot;:&quot;cat&quot;,&quot;values&quot;:[&quot;business-careers-money&quot;,&quot;personal-finance&quot;,&quot;loans-credit&quot;,&quot;credit-reports&quot;]},{&quot;key&quot;:&quot;isbn&quot;,&quot;values&quot;:[&quot;9781118821510&quot;]}]\" id=\"du-slot-62d745c40ddfb\"></div></div>","rightAd":"<div class=\"du-ad-region row\" id=\"article_page_right_ad\"><div class=\"du-ad-unit col-md-12\" data-slot-id=\"article_page_right_ad\" 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2,280 results
2,280 results
Medicare How to Opt Out of Medicare Part B

Article / Updated 08-04-2022

Medicare Part B covers two kinds of health services: medically necessary care and preventive care. You need to think twice about saying no to Medicare Part B coverage, even though it costs a monthly premium to use it. (If that amount would be a hardship, you may be able to have the premiums paid by your state.) It’s an important decision you need to make during the enrollment process — especially if you’re signed up automatically — and you should be very clear on how to deal with it given your situation. There are situations when opting out of Part B is okay — in other words, not likely to cause you any regrets (or cost you money!) in the future. And there are situations when opting out is costly or causes other problems. Bizarrely, the rules are different for people who have Medicare because they’re 65 or older and those who have it at earlier ages because of a disability. So look separately at these two groups to know when people in each can confidently turn down Part B. Know when to turn down Part B if you’re 65 or older In general, when you’re 65 or older, you should decline Part B only if you have group health insurance from an employer for whom you or your spouse is still actively working and that insurance is primary to Medicare. (That is, it pays before Medicare does.) In this situation, you can delay Part B enrollment without penalty until the employment stops or the insurance ends. So if you’re not yet drawing Social Security retirement benefits, just skip signing up for Part B. Or if you’re enrolled automatically because you’re receiving those benefits, you can decline Part B by following the instructions that Social Security sends you in the letter that accompanies your Medicare card and meeting the specified deadline. Opting out ensures that you don’t have to pay Part B premiums or, if you’re receiving retirement benefits, have them deducted each month from your Social Security retirement check. But of course, if you prefer to pay for both employer insurance and Medicare coverage — and that’s entirely your choice — go ahead and enroll (or stay enrolled) in Part B. One group of people is especially prone to turn down Part B without giving it adequate thought: people age 65 and older who are in same-sex marriages or domestic arrangements with people of the same or the opposite sex and who are covered under health insurance from their partner’s employer. If you’re in either of these situations, you need to find out exactly how current law applies to you. When to turn down Part B if you’re under 65 In general, if you have Medicare based on disability, you should decline Part B only if You have health insurance from an employer for whom you or your spouse actively works, and the employer has 100 or more employees. You’re covered as a family member on somebody else’s group health plan at work, and the employer has 100 or more employees. What does family member mean? It means that the employer providing this insurance regards you as eligible for health coverage based on your domestic relationship with an employee — even if you aren’t formally married to that person and even if they are the same sex as you. When turning down Part B at any age is risky Regardless of whether you have Medicare based on disability or age, you should definitely enroll in Part B (or not refuse it) if you have health insurance that will automatically become secondary to Medicare (it will pay after Medicare does) when your Medicare benefits begin. This includes the following: Health insurance that you buy yourself on the open insurance market and that isn’t provided by an employer Health insurance from an employer with fewer than 20 employees (if you’re 65 or older) Health insurance from an employer with fewer than 100 employees (if you have Medicare because of disability) Retiree benefits from a former employer (your own or your spouse’s) Health benefits from the military’s TRICARE For Life retiree program When Medicare is primary coverage, it pays the bills You should enroll in Part B coverage in the preceding situations for a very good reason quite apart from the possibilities of late penalties down the road if you don’t. When Medicare is considered primary coverage, it pays your medical bills first. So if you’re not enrolled in Part B, you run the real risk of having your insurance plan deny any claims that Medicare could’ve paid — from basic ones like doctors’ visits and lab tests to major ones like surgery. In other words, you may face having to pay the entire bill. Worse, if your own insurer takes a while to realize that you haven’t enrolled in Part B, your plan may even ask you to pay back all the money it has spent on your medical services since you became eligible for Medicare. This kind of thing doesn’t always happen. For example, if you’re a federal retiree and receiving health insurance from a plan in the Federal Employee Health Benefits Program, you aren’t required to enroll in Part B. When deciding whether to accept or decline Part B, finding out whether Medicare would be primary or secondary to any other insurance that you have is critically important. Copyright © 2014 AARP. All rights reserved.

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Bonds The Interest Rate Risk in Bond Investing

Article / Updated 08-03-2022

The vast majority of bond offerings are rather staid investments. You give your money to a government or corporation. You receive a steady flow of income, usually twice a year, for a certain number of years. Then, typically after a few years, you get your original money back. Sometimes you pay taxes. A broker usually takes a cut. Beginning and end of story. The reason for bonds’ staid status is not only that they provide steady and predictable streams of income, but also that as a bondholder you have first dibs on the issuer’s money. A corporation is legally bound to pay you your interest before it doles out any dividends to people who own company stock. If a company starts to go through hard times, any proceeds from the business or (in the case of an actual bankruptcy) from the sale of assets go to you before they go to shareholders. However, bonds offer no ironclad guarantees. First dibs on the money aside, bonds are not FDIC-insured savings accounts. They are not without some risk. For that matter, even an FDIC-insured savings account — even stuffing your money under the proverbial mattress! — also carries some risk. Interest rates go up, and interest rates go down. And whenever they do, bond prices move, almost in synch, in the opposite direction. Why? If you’re holding a bond that pays 5 percent, and interest rates move up so that most new bonds are paying 7 percent, your old bond becomes about as desirable to hold as a pet scorpion. Any rational buyer of bonds would, all things being equal, choose a new bond paying 7 percent rather than your relic, still paying only 5 percent. Should you try to sell the bond, unless you can find a real sucker, the price you are likely to get will be deeply discounted. The longer off the maturity of the bond, the more its price will drop with rising interest rates. Thus long-term bonds tend to be the most volatile of all bonds. Think it through: If you have a bond paying 5 percent that matures in a year, and the prevailing interest rate moves up to 7 percent, you’re looking at relatively inferior coupon payments for the next 12 months. If you’re holding a 5 percent bond that matures in ten years, you’re looking at potentially ten years of inferior coupon payments. No one wants to buy a bond offering ten years of inferior coupon payments unless she can get that bond for a steal. That’s why if you try to sell a bond after a period of rising interest rates, you take a loss. If you hold the bond to maturity, you can avoid that loss, but you pay an opportunity cost because your money is tied up earning less than the prevailing rate of interest. Either way, you lose. Of course, interest rate risk has its flip side: If interest rates fall, your existing bonds, paying the older, higher interest rates, suddenly start looking awfully good to potential buyers. They aren’t pet scorpions anymore — more like Cocker Spaniel puppies. If you decide to sell, you’ll get a handsome price. This “flip side” to interest rate risk is precisely what has caused the most peculiar situation in the past three decades, where the longest-term Treasury bonds (with 30-year maturities) have actually done as well as the S&P 500 in total returns. The yield on these babies has dipped from over 14 percent in the early 1980s to just a little over 3 percent today. Hence, those old bonds, which are now maturing, have turned to gold. Will this happen again in the next 30 years? Not unless long-term Treasuries in the year 2042 are being issued with a negative 8 percent interest rate. Of course, that isn’t going to happen. More likely, interest rates are going to climb back to historical norms. Interest rate risk has perhaps never been greater than it is today. You would be foolish to put your money into 30-year Treasuries and assume that you are going to get 11.5 percent a year annual return, as some very lucky investors have done over the last 30 years. Chances are, well . . . anything can happen over 30 years, but keep your expectations modest, please.

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Bonds The Reinvestment Risk in Bond Investing

Article / Updated 08-03-2022

The vast majority of bond offerings are rather staid investments. You give your money to a government or corporation. You receive a steady flow of income, usually twice a year, for a certain number of years. Then, typically after a few years, you get your original money back. Sometimes you pay taxes. A broker usually takes a cut. Beginning and end of story. The reason for bonds’ staid status is not only that they provide steady and predictable streams of income, but also that as a bondholder you have first dibs on the issuer’s money. A corporation is legally bound to pay you your interest before it doles out any dividends to people who own company stock. If a company starts to go through hard times, any proceeds from the business or (in the case of an actual bankruptcy) from the sale of assets go to you before they go to shareholders. However, bonds offer no ironclad guarantees. All investments carry some risk, such as reinvestment risk. When you invest $1,000 in, say, a 20-year bond paying 6 percent, you may be counting on your money compounding every year. If that is the case — if your money does compound, and you reinvest all your interest payments at 6 percent — after 20 years you’ll have $3,262. But suppose you invest $1,000 in a 20-year bond paying 6 percent and, after four years, the bond is called. The bond issuer unceremoniously gives back your principal, and you no longer hold the bond. Interest rates have dropped in the past four years, and now the best you can do is to buy another bond that pays 4 percent. Suppose you do just that, and you hold the new bond for the remainder of the 20 years. Instead of $3,262, you are left with $2,387 — about 27 percent less money. This is called reinvestment risk, and it’s a very real risk of bond investing, especially when you buy callable or shorter-term individual bonds. Of course, you can buy non-callable bonds and earn less interest, or you can buy longer-term bonds and risk that interest rates will rise. Tradeoffs! Tradeoffs! This is what investing is all about. Note that one way of dealing with reinvestment risk is to treat periods of declining interest rates as only temporary investment setbacks. What goes down usually goes back up.

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Dividends Value Investing: How to Spot a Bargain

Article / Updated 08-02-2022

Some people are better at bargain hunting than others. What usually separates the clueless from the pros is that the pros know what something is worth. The same is true for finding bargains on Wall Street. You need to know what a stock is worth, and low price isn’t always a bargain. Value investors hunt for bargains, but they buy only after performing some careful research and crunching the numbers. When you spot a stock that seems to be underpriced, ask the following questions to determine whether it’s a real buy: Is this stock down due to market conditions? If the broader stock market is down, possibly due to an economic slowdown or recession, chances are good that most other stocks are down too. If the share price falls but the company’s fundamentals remain strong, this stock may be the bargain you’ve been looking for. (If the market is up but the stock is down, the stock isn’t necessarily a loser. The drop in share price may be an anomaly representing a good buying opportunity. Ask more questions.) When market conditions turn sour, a rational reason for indiscriminate selling is when investors experience a liquidity crisis. Desperate for cash but unable to sell their worst money-losing investments, investors in this situation sell what they can, typically their most liquid stocks and bonds. Often these may be their best investments, but the need for cash forces them to sell. This scenario provides a bargain for the value investor. Is this stock down because of sector news? If bad news comes out of one stock in the sector, traders may flee from stocks in the same sector. If a good company’s stock takes a hit because of another company’s misfortune, that’s a bargain waiting to happen. Is the stock down because it’s not in a sexy industry? At the peak of the tech bubble, anything that wasn’t a technology stock (pretty much anything that functioned as a part of the economy prior to 1980) was considered out of fashion, and their stock prices fell as a result. However, they continued to post earnings and revenue growth. The industrials, manufacturers, food processors, and other standard bearers became value stocks in the late 1990s. Value investors were rewarded for their patience and conviction when the tech bubble burst and investors returned to more traditional companies. Is this stock down because of problems specific to this company? If investors have fled for good reason, sell shares in the company if you own them or avoid buying if you don’t. However, keep in mind that the market tends to overreact and that some negative news can be very short-lived, especially if it’s not true. A passing bit of bad news can trigger a good buying opportunity, but if the news points out fundamental problems in the company’s success or operations, watch out. Be wary of the following: Declining sales or earnings Excessive debt Little or no cash flow Scandal Illegality, such as falsifying documents or insider trading If this stock has a lot of issues, the beautiful thing about the stock market is you don’t have to hang around. Money can stagnate or even rot in a dead stock, but if you sell and put the money into a true value stock, you may be able to recoup some of your losses.

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General Investing The Optimal F Money Management Style

Article / Updated 08-02-2022

Over the years, day traders have developed many different ways to manage their money. Some of these are rooted in superstition, but most are based on different statistical probability theories. The underlying idea is that you should never place all of your money in a single trade, but rather put in an amount that is appropriate given the level of volatility. Otherwise, you risk losing everything too soon. Calculating position size under many of these formulas is tricky stuff. That’s why brokerage firms and trading software packages often include money management calculators. Optimal F is only one method. There are other methods out there, and none is suitable to all markets all the time. Folks trading both options and stocks may want to use one system for option trades and another for stock trades. If that’s your situation, you have one big money management decision to make before you begin: how much money to allocate to each market. Optimal F The Optimal F system of money management was devised by Ralph Vince, and he’s written several books about this and other money management issues. The idea is that you determine the ideal fraction of your money to allocate per trade based on past performance. If your Optimal F is 18 percent, then each trade should be 18 percent of your account — no more, no less. The system is similar to the fixed fraction and fixed ratio methods, but with a few differences. The following figure shows the equation for finding the number of shares of stock, N, to trade according to the Optimal F method. F is a factor based on the basis of historical data, and the risk is the biggest percentage loss that you experienced in the past. Using these numbers and the current price, you can find the contracts or shares you need to buy. If your account has $25,000, your biggest loss was 40 percent, your F is determined to be 30 percent, and you’re looking at a stock trading at $25 per share, then you should buy 750 shares: The Optimal F number itself is a mean based on historical trade results. The risk number is also based on past returns, and that’s one problem with this method: it only kicks in after you have some trade data. A second problem is that you need to set up a spreadsheet to calculate it (so read Ralph Vince’s book if you want to try it out). Some traders only use Optimal F in certain market conditions, in part because the history changes each time a trade is made, and that history doesn’t always lead to usable numbers.

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General Investing Kelly Criterion Method of Money Management

Article / Updated 08-02-2022

The Kelly Criterion is a method of management that helps you calculate how much money you might risk on a trade, given the level of volatility in the market. It emerged from statistical work done by John Kelly at Bell Laboratories in the 1950s. The goal was to figure out the best ways to manage signal-noise issues in long-distance telephone communications. Very quickly, the mathematicians who worked on it saw that there were applications to gambling, and in no time, the formula took off. Using the Kelly Criterion for trading is only one method. There are other methods out there, and none is suitable to all markets all the time. Folks trading both options and stocks may want to use one system for option trades and another for stock trades. To calculate the ideal percentage of your portfolio to put at risk, you need to know what percentage of your trades are expected to win as well as the return from a winning trade and the ratio performance of winning trades to losing trades. The shorthand that many traders use for the Kelly Criterion is edge divided by odds, and in practice, the formula looks like this: Kelly % = W – [(1 – W) / R] W is the percentage of winning trades, and R is the ratio of the average gain of the winning trades relative to the average loss of the losing trades. For example, assume you have a system that loses 40% of the time with a loss of 1% and that wins 60 % of the time with a gain of 1.5%. Plugging that into the Kelly formula, the right percentage to trade is .60 – [(1 – .60)/(.015/.01)], or 33.3 percent. As long as you limit your trades to no more than 33% of your capital, you should never run out of money. The problem, of course, is that if you have a long string of losses, you could find yourself with too little money to execute a trade. Many traders use a “half-Kelly” strategy, limiting each trade to half the amount indicated by the Kelly Criterion, as a way to keep the trading account from shrinking too quickly. They are especially likely to do this if the Kelly Criterion generates a number greater than about 20 percent, as in this example.

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Cryptocurrency Basic Ethereum Smart Contract Syntax

Article / Updated 07-25-2022

If you plan to do any Ethereum development, you’ll likely be using Solidity, one of the most popular programming languages for smart contracts. Let’s take a look at some basic Solidity syntax. When you write Solidity source code, you save that code in a file with the extension .sol. A Solidity program has several main sections, as follows: Pragma: This tells Solidity what versions of the compiler are valid to compile this file. Comments: Developers should use comments for documenting code. Import: An import defines an external file that contains code that your smart contract needs. Contract(s): This section is where the body of your smart contract code resides. Declaring valid compiler version in Ethereum smart contracts The pragma directive should be the first line of code in a Solidity file. Because the Solidity language is still maturing, it is common for new compiler versions to include changes that would fail to compile older programs. The pragma directive helps avoid compiler failures due to using a newer compiler. Here is the syntax for the pragma directive: pragma Solidity <>; Here is a sample pragma directive: pragma Solidity ^0.4.24; All statements in Solidity end with a semicolon. The version number starts with a 0, followed by a major build number and a minor build number. For example, the version number 0.4.24 refers to major build 4 and minor build 24. The caret symbol (^) before the version number tells Solidity that it can use the latest build in a major version range. In the preceding example, Solidity can use a compiler from any build in the version 4 build range. This is a way to tell readers that your program was written for 0.4.24 but will still compile for subsequent version 4 builds. Although using the caret in the pragma directive provides flexibility, it is a better practice to drop the caret and tell Solidity exactly what compiler version you expect. Commenting your Solidity code Adding comments to your code is an extra step that adds a professional look and feel to your Solidity code. A well-commented source code file is easier to read and understand and helps other developers quickly understand what your code is supposed to do. Even simple comments can cut down on the time required to fix bugs or add new functionality. Comments can also provide input for utilities to generate documentation for your smart contracts. You can use single-line or multiline regular comments. Single-line comments start with two forward slashes. Multiline comments start with the /* characters and end with the */ characters. Here is an example of Solidity comments: // Here is a single line Solidity comment /* I have a lot more to say with this comment, so I’ll use a multiline comment. The compiler will ignore everything after the opening comment characters, until it sees the closing comment characters. */ A third type of Solidity comment is called the Ethereum Natural Specification (NatSpec) directive. You can use NatSpec to provide information about your code for documentation generators to use to create formatted documentation the describes your smart contracts. NatSpec directives start with three forward slashes and include special tags with data for the documentation. Here is an example of using NatSpec directives: /// @title Greeter smart contract /// @author Joe Programmer /// @notice This code takes a person's name and says hello /// @param name The name of the caller /// @return greeting The greeting with the caller's name Check out NatSpec documentation for additional information. Importing external code into your Ethereum smart contract The import section is optional but can be powerful when used correctly in your Ethereum smart contract. If your smart contract needs to refer to code in other files, you’ll have to import those other files first. Importing files makes it as though you copied the other code into the current file. Using imports helps you avoid actually copying code from one place to another. If you need to access code, just import the Solidity file that contains it. The syntax for importing other files is simple. You use the import keyword and then provide the filename for the file you want to import. For example, to import the file myToken.sol, use this syntax: Import 'myToken.sol'; Defining your Ethereum smart contracts In the last main section of Solidity, you define the contents of your smart contract. It starts with the keyword contract and contains all of the functional code in your smart contract. You can have multiple contract sections in Solidity. That means a single .sol file can define multiple contracts. Here is an example contract section: contract HelloWorld { string private helloMessage = "Hello world"; function getHelloMessage() public view returns (string) { return helloMessage; } } Inside the contract section is where you define all of your variables, structures, events, and functions. There's a lot more to the contract section of your code, but for now, you know how to set up a Solidity smart contract. Once you master the basics of Solidity, you can continue to develop more complex code and the sky's the limit.

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Cryptocurrency How Blockchains Work

Article / Updated 07-25-2022

Originally, blockchain was just the computer science term for how to structure and share data. Today, blockchains are hailed the "fifth evolution" of computing. Blockchains are a novel approach to the distributed database. The innovation comes from incorporating old technology in new ways. You can think of blockchains as distributed databases that a group of individuals controls and that store and share information. There are many different types of blockchains and blockchain applications. Blockchain is an all-encompassing technology that is integrating across platforms and hardware all over the world. A blockchain is a data structure that makes it possible to create a digital ledger of data and share it among a network of independent parties. There are many different types of blockchains. Public blockchains: Public blockchains, such as Bitcoin, are large distributed networks that are run through a native token. They're open for anyone to participate at any level and have open-source code that their community maintains. Permissioned blockchains: Permissioned blockchains, such as Ripple, control roles that individuals can play within the network. They're still large and distributed systems that use a native token. Their core code may or may not be open source. Private blockchains: Private blockchains tend to be smaller and do not utilize a token. Their membership is closely controlled. These types of blockchains are favored by consortiums that have trusted members and trade confidential information. All three types of blockchains use cryptography to allow each participant on any given network to manage the ledger in a secure way without the need for a central authority to enforce the rules. The removal of central authority from database structure is one of the most important and powerful aspects of blockchains. The figure shows the concept of how blockchains come to agreement. Blockchains create permanent records and histories of transactions, but nothing is really permanent. The permanence of the record is based on the permanence of the network. In the context of blockchains, this means that a large portion of a blockchain community would all have to agree to change the information and are incentivized not to change the data. When data is recorded in a blockchain, it's extremely difficult to change or remove it. When someone wants to add a record to a blockchain, also called a transaction or an entry, users in the network who have validation control verify the proposed transaction. This is where things get tricky because every blockchain has a slightly different spin on how this should work and who can validate a transaction.

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Social Security How to Estimate How Much Social Security You’ll Get Each Month

Article / Updated 07-19-2022

Copyright © 2015 AARP After you figure out your full retirement age, you can get a ballpark idea of your monthly benefit. Currently, the average retirement benefit is about $1,328 per month (in January 2015), but benefits go much higher, depending on your earnings history and when you begin collecting. It’s easy to get at least a rough estimate of your retirement benefits. Just use one of the SSA’s online calculators — the Social Security Quick Calculator or the Retirement Estimator. The Retirement Estimator is especially useful, because it also gives you projected amounts for retiring early at 62, waiting for the full retirement age, or delaying all the way until 70. (You also can get estimates customized to your personal situation by using AARP’s Social Security Benefits Calculator.) If you use the SSA’s Retirement Estimator, you’ll see roughly how much Social Security you could get, especially if your earnings don’t skyrocket or crash between now and the time you retire. If you haven’t yet done so, you can use the Retirement Estimator as a starting point to think about how much money you can count on in retirement. Whether the Social Security numbers look small, large, or in between, remember that Social Security is meant to be just one part of your financial foundation. You stand to get much more money if you can delay collecting Social Security past your full retirement age. For example, if you were born between 1943 and 1954, your Social Security payment at 62 is 25percent lower than if you wait until 66 (your full retirement age). If you hold off to age 70 — four years past your full retirement age — the benefit balloons by 32 percent. These differences can add up to real money over the years — or decades. Consider the following example: Elisa was born in 1953 and wants to know how she would be affected by choosing different dates to retire. She goes to the Retirement Estimator tool and quickly types in some basic information, including her name, Social Security number, state of birth, and mother’s maiden name. She also plugs in the $160,000 she earned last year. The Retirement Estimator lists the estimated payments she would get for retiring at three different ages. If Elisa waits until her full retirement age of 66, she’ll get about $2,615 per month. If she waits until 70 to collect benefits, she’ll get about $3,512 per month. And if she wants to start as soon as possible, at 62, she’ll get a more modest $1,930 per month. Elisa knows that longevity runs in her family, so she wants to find out how much she’ll collect from Social Security if she lives to 90. To get the answer, she calculates the number of months she would receive benefits in three different cases — starting at 62 (336 months), starting at 66 (288 months), and starting at 70 (240 months). Then she multiplies the number of months by the estimated benefit provided by the online tool. If Elisa starts the benefit at 62 and lives to 90, she could end up with more than $648,000 over her lifetime, not even counting increases for inflation (336 months between 62 and 90, multiplied by the estimated benefit of $1,930 per month for benefits starting at 62). If she starts at 66, her lifetime collection would exceed $753,000. And if she starts the benefit at 70, she ends up with more than $842,880. The difference between starting benefits at 62 and at 70 comes to $194,400 for Elisa. Your decision on when to begin retirement benefits makes a real difference in your monthly income. The numbers here are based on a retirement age of 66 and a monthly benefit of $1,000. They may differ based on your year of birth and other factors. Credit: Source: Social Security Administration Waiting to take retirement benefits beyond your full retirement age could prove especially important for Baby Boomers and, right behind them on the age ladder, members of Generation X. For people born in 1943 or later, the retirement benefit expands at a rate of 8 percent per year (or 2⁄3 of 1 percent per month) for each year you delay claiming (up to age 70) after reaching full retirement age. Year of Birth Yearly Rate of Increase Monthly Rate of Increase 1933–1934 5.5 percent 11⁄24 of 1% 1935–1936 6.0 percent 1⁄2 of 1% 1937–1938 6.5 percent 13⁄24 of 1% 1939–1940 7.0 percent 7⁄12 of 1% 1941–1942 7.5 percent 5⁄8 of 1% 1943 or later 8.0 percent 2⁄3 of 1% If you were born on January 1, refer to the previous year.

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Credit Reports How to Qualify for First-Time Cards and Lending

Article / Updated 07-19-2022

Credit impacts two major and basic consumer credit instruments that most people need when they get started on life’s journey: credit cards and loans. You may think that you know how these instruments work, but things have changed because of regulations like the CARD Act and the financial meltdown that threatened banks with failure due in large part to lax underwriting standards. Getting a credit card Getting credit for the first time used to be easy. All you had to do was drive to your nearest gas station and fill out an application for a gas card and then wait for the mail to arrive with your new plastic. If you were a city dweller, the trip may have been on foot to a department store, which would often grant credit on the spot. Both types of credit were relatively easy to get, and they reported your credit history to the three bureaus so that you built a credit history quickly. More and more department store and gas cards are tightening their standards to reflect tightened credit conditions. You can try for cards issued by banks that use a national transaction network such as Visa. Though these cards are more versatile and powerful than their earlier counterparts, they’re also harder to get. Getting that first card now requires a new approach. To begin with, you need a credit history. But how do you get a credit history without credit? Two of the most popular ways are to use someone else’s credit or to use a secured credit card. Use other people’s credit In most instances, when you use another person’s credit, the other person is a family member or a person with whom you have an emotional attachment. Why? Because using someone else’s credit can be dangerous to that person if you mess up. Only someone who really likes you is willing to risk helping you get started. You can piggyback on another person’s credit in two ways. The most popular way is to be added to the person’s account as an authorized user. The other way is to have the person cosign for you. Become an authorized user Being named an authorized user on someone’s credit account enables you to have his or her credit history reported on your credit report while you use a card for which the other person is solely financially responsible. The card statement goes to the account owner, she pays the credit card company, you pay the card owner, and the card’s credit history is reported in both your and the owner’s files. Problems with this approach can arise if the account owner defaults or is late with payments, because then those negative marks go on your credit history, too. Another common pitfall is that you overcharge and the account owner has to ask you for more money than you have available, which can cause a rift between you. Cosigners Cosigning on an account is more often than not a recipe for disaster, and it’s not usually recommended. The cosigner’s credit history doesn’t show up on your credit report. Instead, all that shows up is your own payment history. The statement for a cosigned account doesn’t go to the cosigner, so unless you share the information, the cosigner has no idea what’s happening to the account. Often, the cosigner first hears of a problem when a collector calls and demands an overdue payment. Unfortunately, if you make late payments, the delinquency history appears on the cosigner’s credit report, and negative information stays on the cosigner’s credit history for a full seven years. If you decide to go the cosigning route, its’ a good idea to commit to paying this bill before almost any other. You also need to have the courage to keep your cosigner informed of any changes in your financial picture, especially if you may be late on a payment. Using secured cards A secured card looks and works just like a credit card but is backed by a cash deposit at the bank that issues the card. Typically, your deposit qualifies you for a credit card with a limit equal to that deposit amount. As a result, limits on secured cards tend to be low, but the real value here is to establish a credit history so that you can get an unsecured card and reallocate your deposit to a better purpose, like your emergency savings account. You can find and compare secured cards on a number of websites. Two good sources include Bankrate.com and Creditcards.com. You want to balance services, fees, and interest rates to find the best card for you. Use savings for credit Most banks are happy to lend you your own money. If you accumulate some savings in a passbook account, you can use the savings to secure an installment loan of the same or a lesser amount. With 100 percent collateral in cash for the loan, the interest rate should be very low. Make sure that the loan is reported to the credit bureaus so that you build your credit.

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