A way to gauge the market's direction
Q. The monitor recently recently ran a chart showing the Dow's "22 week moving average." What is a moving average and how is it measured? R.B.G., via e-mail
A. "There are many different moving average indicators, such as a 10-day trend line, a 30-day trend line, a 50-day moving average, a 200-day moving average, as well as the 22-week average you cite," says Greg Nie, chief market technician for investment house Everen Securities Inc., Chicago.
The 22-week moving average (see Market Monitor on page 12) is designed to show the long-term trend and momentum of the Dow Jones Industrial Average. We calculate it by averaging the Dow's current, weekly closing number with the previous 21 weekly closings.
So we arrived at today's number by taking the Dow's Friday close and averaging it with the 21 previous Fridays.
If the latest market closing level (the red line) is above the trend (blue) line - the moving average - that is considered bullish. If it closes consistently below the trend line, that could look bearish.
Q. We saw a comparison of funds recently, and Vanguard had the lowest expenses. How is Vanguard consistently able to keep its expenses so low when other companies can't? M.S., N.Y.
A. "We are the only 'mutual-owned' mutual-fund company," says Vanguard spokesman Brian Mattes.
"Our shareholders are our owners. All of our profits go to fund shareholders, so we don't have to split our gains with outside owners. Typically, such a split can take as much as one-half a percent away from profits."
Q. A relative told me there is a simple formula to determine when an investment will double. What is it? G.B., Everett, Wa.
A. It's the Rule of 72.
You can use it to determine future rates of growth.
To find out how long it will take to double your investment, divide 72 by your rate of return.
If you are earning 9 percent, your investment will double in eight years. (72 divided by 9 equals 8.)
You can also use the formula to determine what interest rate you will need to reach a goal. Say you want your money to double in 10 years. You would need to earn 7.2 percent. (72 divided by 10 equals 7.2.)
Note to readers: Earlier, this space recommended calling BanxQuote Online for information about CD rates. Banxquote asks that people use its Web site instead: www.banxquote.com
Questions about finances? Write: Guy Halverson The Christian Science Monitor 500 Fifth Ave., Suite 1845 New York, NY 10110 E-mail: firstname.lastname@example.org