The Personal Finance Geek

Fedspeak is a term used to describe the jargon and acronyms used by the Federal Reserve when it comes to things like interest rates and how much money is in circulation. It can be difficult to understand for people who don't have a lot of financial literacy, but it's important to be able to follow what the Fed is saying in order to make informed financial decisions, because what the Fed says directly impacts, for example, how expensive it is to buy a house or a car because interest rates change as a result of what they say. Here are a few things to keep in mind when trying to understand Fedspeak: The Fed uses a lot of acronyms. Some of the most common ones include: FOMC: The Federal Open Market Committee, which is the group that sets monetary policy. QE: Quantitative easing, which is a tool the Fed uses to buy assets (usually bonds ) in order to stimulate the economy. (and the corresponding selling of bonds in order to "tighten") IOER: Interest on excess reserve...

When I was thinking of things to write about, I remembered the episode of The Office where Michael is invited to Ryan's business school class for the day. While Michael is in the classroom, one of the other business students asks him how far his Herfindahl index has dropped as a result of a recent merger. (Over the course of this explainer, it will become apparent that that student was incorrect-- mergers will increase this index, not decrease it.) This is completely real, and it's actually something that can significantly impact which stocks are available on the market and how much those stocks are worth. One of the ways that businesses grow, and therefore the value of their stocks go up over time, is by buying other companies. In general, there are two directions in which it makes sense to buy a company. If you buy a company vertically relative to yours, then the company you bought is somewhere else on the same supply chain that your company is on. Either you bought t...

Meet Barry: he's a few decades older than Quentin,  so instead of focusing on stocks as the overwhelming majority of his portfolio, his portfolio manager tells him he should consider moving to a more balanced portfolio composition that includes both stocks and bonds.  Stocks are tiny pieces of a company-- big companies, like Apple, Google, Microsoft, and so on divide their worth up into billions of tiny pieces, and when you buy "1 share of Apple," for instance, you're buying a single one of those billions of tiny pieces of one of the biggest companies in the world (actually, as of press time, the biggest company in the world).  When the company does well-- publicly traded companies have to report from time to time to their investors how well they did since their last report-- or launches a new, promising product, the value of the stock rises. When the economy isn't doing so well, people aren't using the company's service or buying its product, so its ...

President Franklin D. Roosevelt took office in March 1933, and one of his immediate goals was to rescue the banking system from the crisis it had been thrown into because of the Great Depression. The Depression caused a number of “bank runs”—periods of panic during which many of a bank’s customers doubt that the bank is a safe place for their money. Because of this doubt, they all want to take their money from that bank and put it somewhere else. But the banking system offers a complication in that, even though your bank account may show you have $1,000,000 in the bank when you look online, the bank may not be able to give it to you in cash when you ask for it at once because the bank doesn’t just let your money sit idle in its vaults. Acting as the guardian of your money, the bank makes loans to other customers like you and to businesses and makes its own investments. Banks do keep some cash on hand—this is called the Reserve Requirement Ratio. Let’s say there are 10 customers at ...

Tax brackets are bands of income defined by the tax code for which there is a tax on income in the band at a predetermined rate. For example, Tom and Tina, a married couple who file their taxes together (for which they operate under the “married filing jointly” status) who are experienced neurosurgeons at a great hospital who make $925,000 each—for a total income of $1.85 million—this would be their tax breakdown. For simplicity, even though this almost certainly wouldn’t give them their biggest advantage, let’s assume they take the standard deduction and nothing else (not even retirement contributions), which for married couples filing jointly, in 2023 is $24,800. Then the first $24,800 they made is tax-free, and they’ll pay taxes on the rest, namely $1,825,200   You only pay taxes at the rate of the band on the income that falls inside the band , so this hypothetical couple’s federal taxes would have looked something like this in 2020: Gross income  $ ...