What is the Dow Jones Industrial Average?

The reverberations of the Brexit vote are being felt worldwide, and the British Pound Sterling (GBP) has declined sharply against all major currencies. It is currently at a 30 year low against the U.S. dollar (USD). Not surprisingly, the top trending searches on Google in the United States is “how to purchase British Pound Sterling.” As of today (June 27, 2016) it costs $1.32 (USD) to buy one GBP, that is down from $1.60 less than a year ago and $2.10 at its peak in 2007. Naturally, Americans recognize a bargain when they see it, especially entering the peak travel season. Unfortunately, buying currencies is not as easy as buying stocks because currencies do not trade on an exchange like stocks do. Here are some ways you can buy currencies and the associated risks that one should keep in mind.

If you are thinking of investing some of the idle cash in your non-retirement accounts before year-end, avoid mutual funds because you will owe taxes. As mutual funds buy and sell securities in the fund during the year, they incur capital gains and losses. Mutual funds are required by law to distribute virtually all capital gains made throughout the year to their shareholders in the form of capital gain distributions. These funds usually pay out yearly capital gains distributions to their shareholders of record in December. The date of record is how the mutual fund determines who is eligible for the distribution. Therefore, if you purchase shares before the date of record, you will be entitled to the distribution and have to pay the subsequent taxes even if you didn't benefit from that fund's growth during the year. While it may sound like a good idea to buy a fund and get immediate income, beware that the fund value (known as Net Asset Value) declines on the date of payment by the exact amount of the distribution. So while you receive a taxable distribution, your asset value also declines by an equal amount. Most investors prefer Exchange Traded Funds (ETFs) over mutual funds (click for an article on the differences between mutual funds and ETFs) because of their tax efficiency (most ETFs do not pay capital gains distributions). But caution should still prevail; some ETFs  may still distribute capital gains. To avoid having to pay tax on an investment you purchase in December, look on the fund's website to find out their date of record and make your purchase after that date.

1. When should I use my emergency fund?
This is a fantastic question because I commonly write about how people should maintain an emergency fund commensurate with the nature of their jobs and their social safety nets. Just to recap, the more volatile your job or the less predictable your income, the larger your emergency fund should be. However, if you have a social safety net in that you have financially stable parents, close relatives, or friends who can help you financially if you are in a pinch, the smaller your emergency fund can be. Keep in mind that you can also use a Roth IRA to maintain your emergency fund because your contributions can be withdrawn at any time without tax or penalty. But when is it ok to use your emergency fund? Here is a short list to help you not feel guilty when dipping into your emergency fund: major car or house repairs, unexpected medical bills, job loss, death in the family, etc. A vacation does not qualify. Lastly, it should go without saying that if you deplete your emergency fund, your top priority should be to replenish it pronto.