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what does the 80 20 rule mean | at its heart the 80 20 rule simply underscores the importance of exerting your energy on those aspects of your business or life sports activity musical performance blog etc that get you the best results however it does not mean people should then ignore the areas that are less successful it s about prioritizing focus and tasks and then solving problems that reveal themselves due to that focus | |
what is the 83 b election | the 83 b election is a provision under the internal revenue code irc that gives an employee or startup founder the option to pay taxes on the total fair market value of restricted stock at the time of granting | |
how to file an 83 b election | the 83 b election applies to equity that is subject to vesting and it alerts the internal revenue service irs to tax the elector for the ownership at the time of granting rather than at the time of stock vesting 1the 83 b election documents must be sent to the irs within 30 days after the issuing of restricted shares in addition to notifying the irs of the election the recipient of the equity must also submit a copy of the completed election form to their employer 2in effect an 83 b election means that you pre pay your tax liability on a low valuation assuming the equity value increases in the following years however if the value of the company instead declines consistently and continuously this tax strategy would ultimately mean that you overpaid in taxes by pre paying on higher equity valuation 3typically when a founder or employee receives compensation of equity in a company the stake is subject to income tax according to its value the tax liability is based on the fair market value of the equity at the time of the granting or transfer minus any cost of exercising or buying the equity shares the tax due must be paid in the actual year the stock is issued or transferred however in many cases the individual receives equity vesting over several years employees may earn company shares as they remain employed over time in which case the tax on the equity value is due at the time of vesting if the company s value grows over the vesting period the tax paid during each vested year will also rise in accordance 43example of an 83 b electionfor example a co founder of a company is granted 1 million shares subject to vesting and valued at 0 001 at the time the shares are granted at this time the shares are worth the par value of 0 001 x number of shares or 1 000 which the co founder pays the shares represent a 10 ownership of the firm for the co founder and will be vested over a period of five years which means that they will receive 200 000 shares every year for five years in each of the five vested years they will have to pay tax on the fair market value of the 200 000 shares vested 5if the total value of the company s equity increases to 100 000 then the co founder s 10 value increases to 10 000 from 1 000 the co founder s tax liability for year 1 will be deduced from 10 000 1 000 x 20 i e in effect 100 000 10 000 x 10 x 20 1 800 if in year 2 the stock value increases further to 500 000 then the co founder s taxes will be 500 000 10 000 x 10 x 20 9 800 by year 3 the value goes up to 1 million and the tax liability will be assessed from 1 million 10 000 x 10 x 20 19 800 of course if the total value of equity keeps climbing in year 4 and year 5 the co founder s additional taxable income will also increase for each of the years if at a later time all the shares sell for a profit the co founder will be subject to a capital gains tax on their gains from the proceeds of the sale 6for restricted stock you must file your 83 b election within 30 days of receiving your shares for stock options you must file 83 b within 30 days of exercising your options 783 b election tax strategythe 83 b election gives the co founder the option to pay taxes on the equity upfront before the vesting period starts this tax strategy allows the co founder to only pay taxes on the fair market value of the shares minus the cost of exercising the options 7 if the fair market value of the shares is equal to their strike price the taxable gain is zero the 83 b election notifies the irs that the elector has opted to report the difference between the amount paid for the stock and the fair market value of the stock as taxable income the share value during the 5 year vesting period will not matter as the co founder won t pay any additional tax and gets to retain the vested shares however if the shares are sold for a profit a capital gains tax will be applied 63following our example above if the co founder makes an 83 b election to pay tax on the value of the stock upon issuance the tax assessment will be made on the difference between the shares strike price and their fair market value if the stock is sold after say ten years for 250 000 the taxable capital gain will be on 249 000 250 000 1 000 249 000 the 83 b election makes the most sense when the elector is sure that the value of the shares is going to increase over the coming years also if the amount of income reported is small at the time of granting an 83 b election might be beneficial in a reverse scenario where the 83 b election was triggered and the equity value falls or the company files for bankruptcy then the taxpayer overpaid in taxes for shares with a lesser or worthless amount unfortunately the irs does not allow an overpayment claim of taxes under the 83 b election for example consider an employee whose total tax liability upfront after filing for an 83 b election is 50 000 since the vested stock proceeds to decline over a 4 year vesting period they would have been better off without the 83 b election paying an annual tax on the reduced value of the vested equity for each of the four years assuming the decline is significant another instance where an 83 b election would turn out to be a disadvantage will be if the employee leaves the firm before the vesting period is over in this case they would have paid taxes on shares that would never be received also if the amount of reported income is substantial at the time of stock granting filing for an 83 b election will not make much sense benefits of 83 b electionan 83 b election offers significant benefits for individuals receiving restricted stock or property by choosing this option they can pay taxes upfront based on the property s fair market value at the time of grant potentially at a lower rate compared to when it vests this upfront taxation can lead to tax savings especially if the property s value is expected to appreciate significantly furthermore making the election allows for more favorable tax treatment on future gains taxing appreciation at the lower capital gains rate rather than ordinary income additionally individuals who make the 83 b election may have the opportunity to deduct losses if the property s value decreases before vesting providing a level of tax flexibility and protection overall the 83 b election offers a strategic approach to managing tax liabilities and optimizing tax treatment for recipients of restricted property | |
when is it beneficial to file 83 b election | an 83 b election allows for the pre payment of the tax liability on the total fair market value of the restricted stock at the time of granting it is beneficial only if the restricted stock s value increases in the subsequent years also if the amount of income reported is small at the time of granting an 83 b election might be beneficial | |
what happens if you don t make an 83 b election | failing to make an 83 b election can have significant tax consequences for individuals who receive restricted stock or other property subject to vesting when restricted stock or property vests you ll be taxed on its value as ordinary income at that time potentially resulting in higher taxes without the election any future appreciation in the property s value will be subject to capital gains tax upon sale possibly leading to less favorable tax treatment overall | |
when is it detrimental to file 83 b election | if an 83 b election was filed with the irs and the equity value falls or the company files for bankruptcy then the taxpayer overpaid in taxes for shares with a lesser or worthless amount unfortunately the irs does not allow an overpayment claim of taxes under the 83 b election another instance is if the employee leaves the firm before the vesting period is over then the filing of 83 b election would turn out to be a disadvantage as they would have paid taxes on shares they would never receive also if the amount of reported income is substantial at the time of the stock granting filing for an 83 b election will not make much sense | |
what is profits interest | profits interest refers to an equity right based on the future value of a partnership awarded to an individual for their service to the partnership the award consists of receiving a percentage of profits from a partnership without having to contribute capital in effect it is a form of equity compensation and is used as a means of incentivizing employees when monetary compensation may be difficult due to limited funds such as with a start up limited liability company llc usually this type of worker compensation requires an 83 b election the bottom linean 83 b election allows someone to pay taxes on their stock awards at the time that they are granted rather than at the time of vesting this tax law is of particular benefit to startup employees who may receive a large part of their compensation in the form of restricted stock or stock options since startups hope that their share value will increase rapidly an 83 b election allows these employees to reduce their tax burden in the long term correction june 14 2023 an older version of this article incorrectly stated that someone making an 83 b election would be taxed according to the cost of exercising their shares in fact the tax is based on the difference between the fair market value of the shares and the exercise price | |
what is an 8 a firm | an 8 a firm is a small business that is owned and operated by socially and economically disadvantaged citizens and that has been accepted into the 8 a business development program this program is administered by the small business administration sba the united states agency charged with supporting the growth and development of small businesses 1 the 8 a program is designed to help disadvantaged entrepreneurs get government contracts and access the economic mainstream in america | |
how 8 a firm status works | the 8 a status is specially granted by the sba to any small business that qualifies making it eligible for financial assistance training mentoring and other forms of assistance in order to qualify for this special status businesses must be owned and operated by individuals who are considered socially and economically disadvantaged these individuals may have been subject to racial or ethnic prejudice or cultural bias the 8 a status is outlined specifically in section 8 a of the small business act and is designed to help small disadvantaged businesses compete in the general market the federal government has a stated goal of awarding at least 5 of federal contracting dollars every year to these businesses 1the purpose of the 8 a business development programone of the main reasons behind the creation of the 8 a status was to increase business involvement by a broader portion of society the sba identifies several groups that are eligible for 8 a status including black americans hispanic americans native americans asian pacific americans and subcontinent asian americans someone who is not a member of one of these groups may still get into the program if they can show significant evidence of having been socially disadvantaged for instance due to race ethnic origin gender and physical handicap among other causes through the 8 a business development program owners can compete for special contracts such as sole source government contracts for which there are no competitive bids that help level the playing field for their small businesses these small businesses can use the program to form joint ventures with already established businesses to form mentor prot g relationships as well as for management and technical assistance businesses must meet certain requirements to be eligible to be a prot g qualifications for 8 a firm statusin order to qualify to become an 8 a firm under sba guidelines a business must meet the following criteria effective july 15 2020 1title 13 part 124 of the code of federal regulations cfr spells out who qualifies for the 8 a program as well as what counts as being economically and socially disadvantaged small businesses with 8 a status can receive sole source contracts up to a ceiling of 4 million for goods and services and 6 5 million for manufacturing owners interested in taking part in the program are encouraged to do an on line training and self evaluation course through the 8 a business development suitability tool the course helps entrepreneurs determine whether or not their company meets the qualifications for the 8 a program and if it does not directs them to an appropriate sba resource before a firm can participate in the 8 a program it must first be certified at certify sba gov and small businesses that want to use the certification website must have a profile at sam gov which is where companies register to do business with the u s government contact your local sba office if you have questions about applying once you have applied the administration will send a notification letter explaining whether the business was accepted into the 8 a program the certification lasts for nine years the first four years are considered to be developmental while the remaining five are deemed to be a transition phase small businesses that gain 8 a status are subject to annual reviews in order to keep the designation and their good standing in the program during these reviews the business owner has to draw up business plans and undergo systematic evaluations entrepreneurs who have secured 8 a firm status say that the application process can be lengthy and rigorous having prior experience with government contracts can be helpful and working hard to take advantage of the program s benefits can make the experience very rewarding | |
definition of 90 day letter | 90 day letter is an irs notice stating that there was a discrepancy or error within an individual s taxes and they will be assessed unless petitioned the taxpayer has 90 days to respond otherwise the audit deficiencies will result in reassessment also known as a notice of deficiency breaking down 90 day letteronce you receive your notice you have 90 days 150 days if the notice is addressed to a person who is outside the country from the date of the notice to file a petition with the tax court if you want to challenge the tax the irs proposed according to the agency these notices are usually sent after or audit in the case of people who fail to file a tax return or who have unreported income | |
what the notice means | if you don t dispute the accuracy of the assessment the internal revenue service has made you won t need to amend your tax return unless you have additional income expenses or credits that you want to report in that case all you need to do is sign form 5564 notice of deficiency and return it to the irs with a check attached to avoid additional interest and or penalties 1 if you agree with the findings but have additional income expenses or credits to claim it will be necessary to amend your original tax return with form 1040 x 1 you can do this through your online tax prep service or your tax professional or fill out the form yourself it gets more complicated if you disagree with the irs findings if you think the irs notice is incorrect incomplete or otherwise mistaken you can contact them with additional information that will shed light on the case you have 90 days from the date of the notice to dispute the claim you can ask the tax court to reassess or correct or eliminate the liability proposed by the deficiency notice during the 90 days and any period the case is being reconsidered the irs by law can t assess or put your account into collection 1 many taxpayers use a tax professional or attorney to handle the dispute process if the amount in question is significant if you lose the appeal and don t or can t pay the government can file a federal tax lien against your wages personal property or your bank account this is a claim against the assets not the seizure of them that happens when a federal tax levy occurs and the irs actually seizes your property payment plans can also be worked out to avoid liens and seizure 2 | |
what is the 90 10 strategy | legendary investor warren buffett proposed the 90 10 strategy in his 2013 chairman s letter to berkshire hathaway shareholders the strategy calls for putting 90 of one s investment capital into low cost stock index funds and the remaining 10 in low risk government bonds 1it differs from many common investing strategies that suggest lower percentages of stocks and higher percentages of bonds especially as the investor gets older alison czinkota investopedia | |
how the 90 10 strategy works | for decades now warren buffett s annual chairman s letters have been eagerly awaited by his shareholders and countless investors eager to emulate his success his 2013 letter covered a variety of topics with a single paragraph devoted to the 90 10 strategy nonetheless that was sufficient to bring it to wide attention which continues to this day here is what he had to say an example of the 90 10 strategyan investor with a 100 000 portfolio who wants to employ a 90 10 strategy could invest 90 000 in an s p 500 index mutual fund or exchange traded fund etf with the remaining 10 000 going toward treasury bills treasury bills or t bills are short term debt issued by the federal government with maturities of up to one year 2 they can be purchased directly from the government through brokers or in the form of a mutual fund or an etf like treasury notes and bonds which have longer maturities they are generally considered the safest of all investments to calculate the performance of a 90 10 portfolio you would multiply each portion by its return for the year for example if the s p 500 returned 10 for the year and treasury bills paid 4 the calculation would be 0 90 x 10 0 10 x 4 resulting in a 9 4 return overall exchange traded funds or etfs work much like mutual funds but are traded on stock exchanges like stocks keeping fees to a minimumone reason buffett advocates investing through index funds is that they typically have rock bottom costs that s because they are passively managed rather that employ investment managers to make decisions on which stocks to buy and when to sell them these funds simply try to replicate a particular stock index like the s p 500 which is based on the stocks of 500 major u s corporations in addition numerous studies have shown that few investment managers can beat the performance of an index in any given year and fewer still can do it year after year 3that doesn t mean all index funds are alike some do a better job than others at keeping their costs down so in choosing among s p 500 index funds you should consider both their performance which is likely to be pretty close and their annual expense ratios which may be significantly different all else being equal a fund with the lower expense ratio will be a better deal in addition some mutual funds typically sold through brokers charge sales commissions or loads when you invest that will immediately take a cut out of your investment you can avoid commissions by buying no load funds directly from the fund company or from a discount broker that offers them criticisms of the 90 10 strategythe primary criticism of a 90 stock and 10 bond allocation is its high risk and potential for extreme volatility by contrast another well known strategy suggests subtracting your age from 110 and putting that percentage into stocks with the rest going into bonds at age 40 for example that would mean 70 stocks 30 bonds at age 65 it would be 45 stocks 55 bonds similar guidelines use 100 or 120 in place of 110 with such a heavy concentration in stocks the 90 10 portfolio is exposed to market fluctuations and can experience significant short term losses during market downturns this can be emotionally challenging for investors and may not be suitable for those with a low risk tolerance or a shorter investment horizon as financial writer walter updegrave put it in a 2018 column what i believe is the major question anyone thinking of adopting this strategy needs to resolve before adopting it will you be willing and able to stick with such an aggressive stocks bonds mix when the markets are in turmoil or even in the midst of a harrowing tailspin 4that s an especially pertinent question for anyone nearing or already in retirement | |
what are the advantages of a 90 10 investment allocation | the primary advantage of a 90 10 allocation is the potential for higher long term returns due to the significant exposure to stocks this strategy may be suitable for investors with a high risk tolerance and a long investment horizon such as those saving for a retirement decades in the future | |
is the 90 10 allocation suitable for conservative investors | generally the 90 10 allocation is considered aggressive and is not suitable for conservative investors conservative investors typically prioritize capital preservation over potential growth and may find the strategy too risky or volatile | |
how often should i rebalance a 90 10 investment portfolio | rebalancing should be done periodically typically annually or when your portfolio deviates significantly from your target allocation it involves adjusting your holdings to maintain the desired asset allocation in this case 90 10 stocks bonds consider setting a threshold where you rebalance regardless of the passage of time for example anytime your portfolio drifts above 95 stock or below 85 stock you rebalance the bottom linea 90 10 investment allocation is an aggressive strategy most suitable for investors with a high risk tolerance and a long time horizon while warren buffett has an enviable track record as an investor it probably isn t for everyone | |
what is an a b trust | an a b trust is a joint trust created by a married couple for the purpose of minimizing estate taxes it is formed with each spouse placing assets in the trust and naming as the final beneficiary any suitable person except the other spouse the trust gets its name from the fact that it splits into two separate entities when one spouse dies trust a is the survivor s trust and trust b is the decedent s trust understanding an a b trustestate taxes can bite deeply into a deceased person s assets for example consider a married couple that has an estate worth 20 million by the time one of the spouses dies the surviving spouse is left with the whole 20 million which is not taxed due to the unlimited marital deduction for assets flowing from a deceased spouse to a surviving spouse but then the other spouse dies leaving the money to their children the taxable portion of the estate the amount that exceeds the 2023 exemption threshold of 12 92 million will be 7 08 million this means that 7 08 million will be taxed at 40 4 25 million leaving 17 17 million 12 92 million 4 25 million for the beneficiaries 1to circumvent an estate from being subject to such steep taxes many married couples set up a trust under their last will and testaments called an a b trust in the example above if the couple instead had an a b trust the death of the first spouse would not trigger any estate taxes as a result of the lifetime exclusion however a sum of money equal to the current exemption amount will be transferred into an irrevocable trust called the bypass trust or b trust this trust is also known as the decedent s trust the remaining amount 7 08 million will be transferred to a survivor s trust or a trust which the surviving spouse will have complete control over the estate tax on the a trust is deferred until after the death of the surviving spouse it s important to note that if the surviving spouse elected portability when the first spouse died the portion of the first spouse s exemption would pass to the surviving spouse in this case 12 92 million which means that the entire 20 million would pass tax free to the beneficiaries as the combined exemption of both spouses would be 25 84 million this removes the need for an a b trust 21benefits of an a b trustthe a trust contains the surviving spouse s property interests but they have limited control over the assets in the deceased spouse s trust however this limited control over the b trust will still enable the surviving spouse to live in the couple s house and draw income from the trust provided these terms are stipulated in the trust while the surviving spouse can access the bypass trust if necessary the assets in this trust will bypass their taxable estate after they die after the surviving spouse dies only the assets in the a trust are subject to estate taxes if the estate tax exemption for this spouse is also 12 92 million for 2023 and the value of assets in the survivor s trust is still valued at 7 08 million none of it will be subject to estate tax 1the federal tax exemption is transferable between married couples through a designation referred to as the portability of the estate tax exemption if one spouse dies the unused portion of their estate tax exemption can be transferred and added to the estate tax exemption of the surviving spouse upon the death of the surviving spouse the property in the decedent s trust passes tax free to the beneficiaries named in this trust 2this is because the b trust uses up the estate tax exemption of the spouse that died first hence any funds left in the decedent s trust will be passed tax free as the decedent s trust is not considered part of the surviving spouse s estate for purposes of the estate tax double taxation is avoided net worth and a b trustsif the deceased spouse s estate falls under the amount of their tax exemption then it may not be necessary to establish a survivor s trust the unused portion of the late spouse s federal tax exemption can be transferred to the surviving spouse s tax exemption by filling out irs form 706 3while a b trusts are a great way to minimize estate taxes they are not used much today they were popular in the decades around the turn of the 21st century when the estate tax which hadn t been adjusted for years could be triggered on estates as small as 1 million or 2 million nowadays each individual has a combined lifetime federal gift tax and estate tax exemption of 12 92 million 25 84 million for married couples in 2023 1so only people with estates valued over 12 92 million 25 84 million for married couples will opt for an a b trust in 2023 with the portability provision a surviving spouse can include the tax exemption of their late spouse 25 84 million in 2023 which can be transferred tax free to beneficiaries if filed within the 9 month period 21 | |
what are the benefits of an a b trust | the benefits of an a b trust include death tax exemptions built in trust protection and the portability of exemption disadvantages include maintenance costs complex structure and the possibility of large capital gains taxes after both parties die | |
why is an a b trust obsolete | a b trusts aren t completely obsolete but they are not as common as they once were due to changes in estate tax law primarily the fact that a couple now has extremely high estate tax exemptions a b trusts are primarily used to reduce estate taxes between married couples | |
what is another name for an a b trust | a b trusts are also known as bypass trusts or credit shelter trusts the goal of these trusts is to reduce estate taxes between married couples the bottom linea b trusts are beneficial in estate planning to reduce taxes but have not been required in recent years due to the higher estate tax exemptions it s worth working with a tax advisor to find ways you can minimize taxes when passing on your assets to your heirs | |
what are china a shares | china a shares are the stock shares of mainland china based companies that trade on the two chinese stock exchanges the shanghai stock exchange sse and the shenzhen stock exchange szse historically china a shares were only available for purchase by mainland citizens due to china s restrictions on foreign investment however since 2003 select foreign institutions have been able to purchase these shares through the qualified foreign institutional investor qfii system established in 2002 the qfii program allows specified licensed international investors to buy and sell on mainland china s stock exchanges a shares are also known as domestic shares because they use the chinese renminbi rmb for valuation china a shares vs b shareschina a shares are different from b shares a shares are only quoted in rmb while b shares are quoted in foreign currencies such as the u s dollar and are more widely available to foreign investors foreign investors may have difficulty accessing a shares because of chinese government regulations and chinese investors may have difficulty accessing b shares most notably for currency exchange reasons some companies opt to have their stock listed on both the a shares and b shares market due to the limited access of chinese investors to b shares the stock of the same company often trades at much higher valuations on the a shares market than on the b shares market although foreign investors may now invest in a shares there is a monthly 20 limit on repatriation of funds to foreign countries the shanghai stock exchange sse publishes the key performance index for a shares known as the sse 180 index in composing the index the exchange selects 180 stocks listed on the sse the selection is diversified between sector size and liquidity to ensure adequate representation thus the index s performance benchmark reflects the overall situation and operation of the shanghai securities market history of china a sharessince its inception in 1990 including a major reform in 2002 the index has seen great fluctuations however it has grown along with the chinese economy the years 2015 to 2016 were a particularly difficult period with a 52 week performance of 21 55 as of july 20 2016 as china grows from an emerging market to an advanced economy there is substantial demand for chinese equity stock exchange regulators continue efforts to make a shares more broadly available to foreign investors and have them recognized by the global investing community in june 2017 the msci emerging markets index announced a two phase plan in which it would gradually add 222 china a large cap stocks in may 2018 the index began to partially include china s large cap a shares which make up 5 of the index full inclusion would make up 40 of the index it is important for countries such as china to open their markets to global investors to stay competitive and thrive economically china a shares provide an alternative investment for those interested in trading in chinese securities | |
what is a aaa credit rating | aaa is the highest possible rating that may be assigned to an issuer s bonds by any of the major credit rating agencies aaa rated bonds have a high degree of creditworthiness because their issuers are easily able to meet financial commitments and have the lowest risk of default rating agencies standard poor s s p and fitch ratings use the letters aaa to identify bonds with the highest credit quality while moody s uses a slightly different aaa to signify a bond s top tier credit rating understanding aaa credit ratingscredit ratings are assessments or opinions of the creditworthiness of a business or government as such they provide an alert of the likelihood that the subject will live up to their financial obligations by paying their bills investors can use these ratings to decide whether countries and bond offerings are safe investments these ratings are assigned by credit rating agencies notably s p moody s and fitch aaa and aaa ratings are considered to be investment grade since they are perceived to have the lowest risk of default these instruments tend to offer the investors the lowest yields among bonds with similar maturity dates lower risk equals lower return the term default refers to a bond issuer failing to fulfill its obligations namely failing to make semiannual interest payments or repay the principal amount when due aaa ratings are given to government debt and companies corporate bonds the global credit crisis of 2008 resulted in a number of companies losing their aaa rating most notably general electric ge 1 as of august 2023 only two companies held the aaa rating outright microsoft msft and johnson johnson jnj 234 apple aapl is split with an aaa rating by moody s and an aa one notch below aaa from s p 5even the united states suffered a ratings cut by s p to aa in 2011 losing its vaunted aaa status due to political infighting over raising the debt ceiling 6 moody s and fitch maintained the u s at aaa and aaa ratings respectively that is until august 2023 when fitch downgraded the u s s long term ratings from aaa to aa the agency cited potential issues with financial deterioration over the next three years and rising national debt 7rather than restricting their fixed income exposure to aaa rated bonds investors should consider balancing those investments with higher income producing bonds such as high yield corporates types of aaa rated bondsmunicipal bonds can be issued as either revenue bonds or general obligation bonds with each type relying on different sources of income revenue bonds for example are paid using fees and other specific income generating sources like city pools and sporting venues on the other hand general obligation bonds are backed by the issuer s ability to raise capital through levying taxes state bonds rely on state income taxes while local school districts depend on property taxes issuers can sell both secured and unsecured bonds each type of bond carries with it a different risk profile a secured bond means that a specific asset is pledged as collateral for the bond and the creditor has a claim on the asset if the issuer defaults secured bonds may be collateralized with tangible items such as equipment machinery or real estate secured collateralized offerings may have a higher credit rating than unsecured bonds sold by the same issuer conversely unsecured bonds are simply backed by the issuer s promise to pay therefore the credit rating of such instruments relies heavily on the issuer s income sources and business outlook benefits of a aaa ratinga high credit rating lowers the cost of borrowing for the issuer or borrower therefore it stands to reason that companies with high ratings are better positioned to borrow large sums of money than fixed income instruments with lesser credit ratings and a low cost of borrowing affords firms a substantial competitive advantage by letting them easily access credit to grow their businesses for example a business may use the incoming funds from a new bond issue to launch a new product line set up a shop in a new location or acquire a competitor all of these initiatives can help a company increase its market share and thrive over the long haul | |
why is a credit rating so important | the level of credit rating that an issuer receives has significant implications on the cost of borrowing in the open market the better the credit rating with aaa being the best the lower the cost to borrow and vice versa as an investor you ll need to balance the risk you re willing to take against the yield you re seeking who decides what credit rating a debt issuer receives there are three major credit rating agencies standard poor s s p moody s and fitch they assess a debt issuer s creditworthiness and ability to pay interest and principal on bonds based on multiple factors such as the company s cash flow the amount of other outstanding debt and the business outlook for the issuer to name just a few criteria | |
what does the aaa credit rating mean | the aaa credit rating is only given to the most creditworthy debt issuers and allows investors to gauge the amount of risk in their fixed income portfolio conservative investors will typically sacrifice return or yield to own the highest credit rating issues available the bottom linecredit ratings are assigned to debt issues and bonds by the three major debt rating agencies s p moody s and fitch their credit ratings have a strong influence on the cost of borrowing for the issuer the better the credit rating the lower the cost to borrow aaa aaa ratings are the highest ratings issued by the credit rating agencies and likely result in the lowest borrowing costs or yields investors seeking a better return should look down the credit ratings scale for bond issuers with lower ratings and higher yields | |
what is aarp | aarp previously known as the american association of retired persons is america s leading organization for people aged 50 and older it is an association that provides benefits marketing services and lobbying on behalf of members founded in 1958 by retired educator dr ethel percy andrus aarp is a nonprofit nonpartisan association with a membership of nearly 38 million 12 | |
how aarp works | aarp provides information education research advocacy and community services through a nationwide network of local chapters and experienced volunteers it focuses its work on consumer issues economic security work health and independent living issues aarp engages in legislative judicial and consumer advocacy in these areas but it does not make campaign contributions to endorse political candidates 2aarp is considered a powerful lobbying group as well as a successful business selling life and health insurance investment products and other financial and non financial services it is also an independent publisher offering modern maturity magazine and the monthly aarp bulletin aarp produced 1 89 billion in revenue in 2022 which came from a variety of endeavors including advertising revenue from its publications and royalties for licensing its name and logo 3 however membership fees represent the most significant source of revenue it is registered as a 501 c 4 non profit by the internal revenue service irs which means it is permitted to engage in lobbying it also administers some 501 c 3 public charity operations while some of its other operations are for profit aarp affiliatesthere are several aarp affiliated organizations and they include the following aarp also has many other initiatives including aarp manages outreach programs that address housing issues and social isolation among seniors aarp has also initiated and managed programs that advocate for the strengthening of social security and medicare criticism of aarpaarp is one of the strongest lobbying groups in america its efforts often receive attention for exerting its influence in washington d c and in state capitals its non profit operations also receive millions of dollars per year in the form of federal grants though the organization is officially nonpartisan some argue that its positions fall into the more liberal part of the political spectrum these include things like aarp s support for government assistance programs for retirees opposition to privatizing social security and commitment to diversity equity and inclusion in its workforce 4 | |
what does aarp stand for | the acronym aarp originally stood for the american association of retired persons the organization officially changed its name to aarp in 1999 as a way of recognizing that many members were not yet retired or continued to work part time 5 | |
how old do you need to be to join aarp | though the mission of aarp focuses on serving and advocating for the needs of those ages 50 and above adults 18 years and older are eligible for membership all members can access aarp benefits except those that are legally or contractually restricted by age such as age restricted insurance plans 6 | |
what political candidates does aarp support | aarp is a nonpartisan organization that does not make contributions to campaigns or political parties and does not endorse candidates the organization does advocate for voter engagement and lobby on issues that impact americans over the age of 50 some of these issues include legislation to regulate social security medicare health insurance access tax deductions prescription drug costs and age discrimination in the workplace 2the bottom lineaarp is a nonprofit organization that promotes the well being and interests of those over age 50 it was formerly called the american association of retired persons but changed its name to aarp in 1999 to reflect the fact that many members were still working full or part time aarp is nonpartisan meaning it doesn t support political campaigns or endorse political candidates it does however have a robust lobbying presence at both the state and federal level on issues that impact older americans and retirees such as social security and health insurance access it also offers many benefits to members such as tax assistance retail and travel discounts insurance products fraud prevention and education | |
what is aarp | aarp previously known as the american association of retired persons is america s leading organization for people aged 50 and older it is an association that provides benefits marketing services and lobbying on behalf of members founded in 1958 by retired educator dr ethel percy andrus aarp is a nonprofit nonpartisan association with a membership of nearly 38 million 12 | |
how aarp works | aarp provides information education research advocacy and community services through a nationwide network of local chapters and experienced volunteers it focuses its work on consumer issues economic security work health and independent living issues aarp engages in legislative judicial and consumer advocacy in these areas but it does not make campaign contributions to endorse political candidates 2aarp is considered a powerful lobbying group as well as a successful business selling life and health insurance investment products and other financial and non financial services it is also an independent publisher offering modern maturity magazine and the monthly aarp bulletin aarp produced 1 89 billion in revenue in 2022 which came from a variety of endeavors including advertising revenue from its publications and royalties for licensing its name and logo 3 however membership fees represent the most significant source of revenue it is registered as a 501 c 4 non profit by the internal revenue service irs which means it is permitted to engage in lobbying it also administers some 501 c 3 public charity operations while some of its other operations are for profit aarp affiliatesthere are several aarp affiliated organizations and they include the following aarp also has many other initiatives including aarp manages outreach programs that address housing issues and social isolation among seniors aarp has also initiated and managed programs that advocate for the strengthening of social security and medicare criticism of aarpaarp is one of the strongest lobbying groups in america its efforts often receive attention for exerting its influence in washington d c and in state capitals its non profit operations also receive millions of dollars per year in the form of federal grants though the organization is officially nonpartisan some argue that its positions fall into the more liberal part of the political spectrum these include things like aarp s support for government assistance programs for retirees opposition to privatizing social security and commitment to diversity equity and inclusion in its workforce 4 | |
what does aarp stand for | the acronym aarp originally stood for the american association of retired persons the organization officially changed its name to aarp in 1999 as a way of recognizing that many members were not yet retired or continued to work part time 5 | |
how old do you need to be to join aarp | though the mission of aarp focuses on serving and advocating for the needs of those ages 50 and above adults 18 years and older are eligible for membership all members can access aarp benefits except those that are legally or contractually restricted by age such as age restricted insurance plans 6 | |
what political candidates does aarp support | aarp is a nonpartisan organization that does not make contributions to campaigns or political parties and does not endorse candidates the organization does advocate for voter engagement and lobby on issues that impact americans over the age of 50 some of these issues include legislation to regulate social security medicare health insurance access tax deductions prescription drug costs and age discrimination in the workplace 2the bottom lineaarp is a nonprofit organization that promotes the well being and interests of those over age 50 it was formerly called the american association of retired persons but changed its name to aarp in 1999 to reflect the fact that many members were still working full or part time aarp is nonpartisan meaning it doesn t support political campaigns or endorse political candidates it does however have a robust lobbying presence at both the state and federal level on issues that impact older americans and retirees such as social security and health insurance access it also offers many benefits to members such as tax assistance retail and travel discounts insurance products fraud prevention and education | |
what is ability to pay taxation | the ability to pay philosophy of taxation maintains that taxes should be levied according to a taxpayer s ability to pay underlying this is the idea is that people businesses and corporations with higher incomes can and should pay more in taxes the ability to pay principle is also known as progressive taxation understanding the ability to pay principleability to pay taxation argues that those who earn higher incomes should pay a greater percentage of those incomes in taxes compared with those who earn less for example in 2023 individuals in the united states with taxable income less than 11 000 faced a 10 income tax rate while those with taxable income of more than 578 126 faced a rate of 37 the nation s top individual rate earnings between those amounts face tax rates as set by income brackets the idea underlying ability to pay taxation is that everyone should make an equal sacrifice in paying taxes and because people with more money effectively have less use for a given dollar paying more of them in taxes does not impose a greater burden think of it this way to a person with earns 1 million a year 10 000 will make very little difference in their life while it will make a big difference to a person earning only 60 000 a year history of ability to pay taxationthe idea of a progressive income tax that is that people with the ability to pay more should pay a higher percentage of their income is centuries old in fact it was once espoused by none other than adam smith himself considered the father of economics in 1776 smith wrote the subjects of every state ought to contribute toward the support of the government as near as possible in proportion to their respective abilities that is in proportion to the revenue which they respectively enjoy under the protection of the state ability to pay pros and consadvocates of ability to pay taxation argue that those who have benefitted most from the nation s way of life in the form of higher incomes and greater wealth can afford and should be obligated to give back a little more to keep the system running the argument is that the society that government tax revenue has helped build infrastructure such as highways fiberoptic communications networks a strong military public schools a free market system provide the environment in which their success was made possible and in which they can continue to enjoy success critics of progressive taxation argue that it is fundamentally unfair they say it penalizes hard work and success and it reduces the incentive to make more money many argue that everyone should pay the same income tax rate also known as a flat tax to make the system more equitable progressive taxation and inequalitywhile the u s still maintains a progressive tax system tax rates for the rich have plummeted over the past several decades when president ronald reagan took office in 1981 the highest income tax bracket for individuals was 70 in 2020 the top rate for incomes is 37 meanwhile inequality has reached levels not seen in at least a century the top 1 now holds more wealth than the bottom 90 | |
what is a tax levied equally | flat taxes are those which are levied at the same rate for all payers this is the inverse of the ability to pay principle also known as a regressive tax system | |
what are main types of taxes | common types of taxes include income tax corporate tax sales tax property tax and tariffs income tax is levied on an individual s earnings while corporate tax is levied on a company s sales taxes are collected at points of sale while tariffs are collected when a good or service is imported or exported property taxes are levied on the value of a home that someone owns | |
why is progressive taxation good | proponents of progressive taxation argue that progessive taxation is a fair to ensure that a tax system is fair especially as it can help reduce inequality in wealth and income in a society however critics warn that there are limitations to progressive taxation as well including the risk of disincentivizing work or expansion and of incentivizing wealthy taxpayers to seek out tax loopholes the bottom lineability to pay refers to a principle holding that taxes should be levied according to one s ability to pay them naturally this would mean that higher earners and wealthier individuals would pay higher tax rates than those with lower or middle income a tax system structured as such is also known as progressive taxation and it has both proponents and detractors | |
what is an abnormal return | an abnormal return describes the unusually large profits or losses generated by a given investment or portfolio over a specified period the performance diverges from the investments expected or anticipated rate of return ror the estimated risk adjusted return based on an asset pricing model or using a long run historical average or multiple valuation techniques returns that are abnormal may simply be anomalous or they may point to something more nefarious such as fraud or manipulation abnormal returns should not be confused with alpha or excess returns earned by actively managed investments understanding abnormal returnsabnormal returns are essential in determining a security or portfolio s risk adjusted performance when compared to the overall market or a benchmark index abnormal returns could help to identify a portfolio manager s skill on a risk adjusted basis it will also illustrate whether investors received adequate compensation for the amount of investment risk assumed an abnormal return can be either positive or negative the figure is merely a summary of how the actual returns differ from the predicted yield for example earning 30 in a mutual fund that is expected to average 10 per year would create a positive abnormal return of 20 if on the other hand in this same example the actual return was 5 this would generate a negative abnormal return of 5 the abnormal return is calculated by subtracting the expected return from the realized return and may be positive or negative cumulative abnormal return car cumulative abnormal return car is the total of all abnormal returns usually the calculation of cumulative abnormal return happens over a small window of time often only days this short duration is because evidence has shown that compounding daily abnormal returns can create bias in the results cumulative abnormal return car is used to measure the effect lawsuits buyouts and other events have on stock prices and is also useful for determining the accuracy of asset pricing models in predicting the expected performance the capital asset pricing model capm is a framework used to calculate a security or portfolio s expected return based on the risk free rate of return beta and the expected market return after the calculation of a security or portfolio s expected return the estimate for the abnormal return is calculated by subtracting the expected return from the realized return example of abnormal returnsan investor holds a portfolio of securities and wishes to calculate the portfolio s abnormal return during the previous year assume that the risk free rate of return is 2 and the benchmark index has an expected return of 15 the investor s portfolio returned 25 and had a beta of 1 25 when measured against the benchmark index therefore given the amount of risk assumed the portfolio should have returned 18 25 or 2 1 25 x 15 2 consequently the abnormal return during the previous year was 6 75 or 25 18 25 the same calculations can be helpful for a stock holding for example stock abc returned 9 and had a beta of 2 when measured against its benchmark index consider that the risk free rate of return is 5 and the benchmark index has an expected return of 12 based on the capm stock abc has an expected return of 19 therefore stock abc had an abnormal return of 10 and underperformed the market during this period | |
what is absolute advantage | absolute advantage is the ability of an individual company region or country to produce a greater quantity of a good or service with the same quantity of inputs per unit of time or to produce the same quantity of a good or service per unit of time using a lesser quantity of inputs than its competitors absolute advantage can be accomplished by creating the good or service at a lower absolute cost per unit using a smaller number of inputs or by a more efficient process investopedia yurle villegasunderstanding absolute advantagethe concept of absolute advantage was developed by 18th century economist adam smith in his book the wealth of nations to show how countries can gain from trade by specializing in producing and exporting the goods that they can produce more efficiently than other countries countries with an absolute advantage can decide to specialize in producing and selling a specific good or service and use the generated funds to purchase goods and services from other countries smith argued that specializing in the products that they each have an absolute advantage in and then trading the products can make all countries better off as long as they each have at least one product for which they hold an absolute advantage over other nations absolute advantage explains why it makes sense for individuals businesses and countries to trade with each other since each has advantages in producing certain goods and services both entities can benefit from the exchange this mutual gain from trade forms the basis of smith s argument that specialization the division of labor and subsequent trade lead to an overall increase in prosperity from which all can benefit this smith believed was the root source of the eponymous wealth of nations 1absolute advantage vs comparative advantageabsolute advantage can be contrasted with comparative advantage which is when a producer has a lower opportunity cost to produce a good or service than another producer an opportunity cost is the potential benefits an individual investor or business misses out on when choosing one alternative over another 2absolute advantage leads to unambiguous gains from specialization and trade only in cases where each producer has an absolute advantage in producing some good if a producer lacks any absolute advantage then adam smith s argument would not necessarily apply however the producer and its trading partners might still be able to realize gains from trade if they can specialize based on their respective comparative advantages instead 3 in his book on the principles of political economy and taxation david ricardo argued that even if a country has an absolute advantage over trading many kinds of goods it can still benefit by trading with other countries if that have different comparative advantages 4assumptions of the theory of absolute advantageboth smith s theory of absolute advantage and ricardo s theory of comparative advantage rely on certain assumptions and simplifications in order to explain the benefits of trade 41both theories assume that there are no barriers to trade they do not account for any costs of shipping or additional tariffs that a country might raise on another s imported goods 41 in the real world though shipping costs impact how likely both the importer and exporter are to engage in trade countries can also leverage tariffs to create advantages for themselves or disadvantages for competitors both theories also assume that the factors of production are immobile in these models workers and businesses do not relocate in search of better opportunities this assumption was realistic in the 1700s in modern trade however globalization has now made it easy for companies to move their factories abroad it has also increased the rate of immigration which impacts a country s available workforce in some industries businesses will work with governments to create immigration opportunities for workers that are essential to their business operations more crucially these theories both assume that a country s absolute advantage is constant and scales equally in other words it assumes that producing a small number of goods has the same per unit cost as a larger number and that countries are unable to change their absolute advantages in reality countries often make strategic investments to create greater advantages in certain industries absolute advantage can also change for reasons other than investment natural disasters for example can destroy farmland factories and other factors of production pros and cons of absolute advantageone advantage of the theory of absolute advantage is its simplicity the theory provides an elegant explanation of the benefits of trade showing how countries can benefit by focusing on their absolute advantages however the theory of comparative advantage does not fully explain why nations benefit from trade this explanation would later fall to ricardo s theory of comparative advantage even if one country has an absolute advantage in both types of goods it will still be better off through trade in other words if one country can produce all goods more cheaply than its trading partners it will still benefit by trading with other countries also as explained earlier the theory also assumes that absolute advantages are static a country cannot change its absolute advantages and they do not become more efficient with scale actual experience has shown this to be untrue many countries have successfully created an absolute advantage by investing in strategic industries 3in fact the theory has been used to justify exploitative economic policies in the postcolonial era reasoning that all countries should focus on their advantages major bodies like the world bank and imf have often pressured developing countries to focus on agricultural exports rather than industrialization as a result many of these countries remain at a low level of economic development 56simple illustration of why countries can benefit by trading on their advantages lacks the explanatory power of the theory of comparative advantage | |
has been used to justify exploitative policies | example of absolute advantageconsider two hypothetical countries atlantica and pacifica with equivalent populations and resource endowments with each producing two products butter and bacon each year atlantica can produce either 12 tubs of butter or six slabs of bacon while pacifica can produce either six tubs of butter or 12 slabs of bacon each country needs a minimum of four tubs of butter and four slabs of bacon to survive in a state of autarky producing solely on their own for their own needs atlantica can spend one third of the year making butter and two thirds of the year making bacon for a total of four tubs of butter and four slabs of bacon pacifica can spend one third of the year making bacon and two thirds making butter to produce the same four tubs of butter and four slabs of bacon this leaves each country at the brink of survival with barely enough butter and bacon to go around however note that atlantica has an absolute advantage in producing butter and pacifica has an absolute advantage in producing bacon if each country were to specialize in their absolute advantage atlantica could make 12 tubs of butter and no bacon in a year while pacifica makes no butter and 12 slabs of bacon by specializing the two countries divide the tasks of their labor between them if they then trade six tubs of butter for six slabs of bacon each country would then have six of each both countries would now be better off than before because each would have six tubs of butter and six slabs of bacon as opposed to four of each good which they could produce on their own | |
how can absolute advantage benefit a nation | the concept of absolute advantage was developed by adam smith in the wealth of nations to show how countries can gain by specializing in producing and exporting the goods that they produce more efficiently than other countries and by importing goods that other countries produce more efficiently specializing in and trading products that they have an absolute advantage in can benefit both countries as long as they each have at least one product for which they hold an absolute advantage over the other 1 | |
how does absolute advantage differ from comparative advantage | absolute advantage is the ability of an entity to produce a product or service at a lower absolute cost per unit using a smaller number of inputs or a more efficient process than another entity producing the same good or service comparative advantage refers to the ability to produce goods and services at a lower opportunity cost not necessarily at a greater volume or quality 23 | |
what are examples of nations with an absolute advantage | a clear example of a nation with an absolute advantage is saudi arabia a country with abundant oil supplies that provide it with an absolute advantage over other nations 7other examples include colombia and its climate ideally suited to growing coffee and zambia possessing some of the world s richest copper mines 89 for saudi arabia to try and grow coffee and colombia to drill for oil would be an extremely costly and likely unproductive undertaking the bottom linethe theory of absolute advantage represents adam smith s explanation of why countries benefit from trade by exporting goods where they have an absolute advantage and importing other goods while the theory is an elegant and simple illustration of the benefits of trade it did not fully explain the benefits of international trade that would later fall to david ricardo s theory of comparative advantages 14 | |
what is absolute return | absolute return is the return that an asset achieves over a specified period this measure looks at the appreciation or depreciation expressed as a percentage that an asset such as a stock or a mutual fund achieves over a given period absolute return differs from relative return because it is concerned with the return of a particular asset and does not compare it to any other measure or benchmark investopedia sydney saporito | |
how absolute return works | absolute return refers to the amount of funds that an investment has earned also referred to as the total return the absolute return measures the gain or loss experienced by an asset or portfolio independent of any benchmark or other standard returns can be positive or negative and may be considered uncorrelated to other market activities in general a mutual fund seeks to produce returns that are better than its peers its fund category and the market as a whole this type of fund management is referred to as a relative return approach to fund investing the success of the asset is often based on a comparison to a chosen benchmark industry standard or overall market performance as an investment vehicle an absolute return fund seeks to make positive returns by employing investment management techniques that differ from traditional mutual funds absolute return investment strategies include using short selling futures options derivatives arbitrage leverage and unconventional assets absolute returns are examined separately from any other performance measure so only gains or losses on the investment are considered alfred winslow jones is credited with forming the first absolute return fund in new york in 1949 in recent years the absolute return approach to fund investing has become one of the fastest growing investment products in the world and is more commonly referred to as a hedge fund a hedge fund is not a specific form of investment it is an investment structured as a pool and set up as either a limited partnership or limited liability company llc a hedge fund manager raises funds by working with outside investors the manager uses the funds to invest based on a declared strategy involving only the purchase of long equities such as common stock hedge funds may specialize in specific areas such as real estate or patents and may also engage in private equity activities while anyone may invest in a hedge fund participants are traditionally accredited and sophisticated investors example of absolute returnas a historical example the vanguard 500 index etf voo delivered an absolute return of 150 15 over the 10 year period ending dec 31 2017 this differed from its 10 year annualized return of 8 37 over the same period further because the s p 500 index had an absolute return of 153 07 over the same period absolute return differed from the relative return which was 2 92 | |
what is absorption costing | absorption costing sometimes called full costing is a managerial accounting method for capturing all costs associated with manufacturing a particular product all direct and indirect costs such as direct materials direct labor rent and insurance are accounted for when using this method under generally accepted accounting principles gaap u s companies may use absorption costing for external reporting however variable costing is disallowed investopedia michela buttignolunderstanding absorption costingabsorption costing includes anything that is a direct cost in producing a good in its cost base absorption costing also includes fixed overhead charges as part of the product costs some of the costs associated with manufacturing a product include wages for employees physically working on the product the raw materials used in producing the product and all of the overhead costs such as all utility costs used in production 1in contrast to the variable costing method every expense is allocated to manufactured products whether or not they are sold by the end of the period absorption costing means that ending inventory on the balance sheet is higher while expenses on the income statement are lower components of absorption costingthe components of absorption costing include both direct costs and indirect costs direct costs are those costs that can be directly traced to a specific product or service these costs include raw materials labor and any other direct expenses that are incurred in the production process indirect costs are those costs that cannot be directly traced to a specific product or service these costs are also known as overhead expenses and include things like utilities rent and insurance indirect costs are typically allocated to products or services based on some measure of activity such as the number of units produced or the number of direct labor hours required to produce the product in absorption costing both direct and indirect costs are included in the cost of a product this means that the cost of each unit of a product includes not only the direct costs of producing that unit but also a portion of the indirect costs that were incurred in the production process the total manufacturing costs are then divided by the number of units produced to determine the cost of each unit the formula for absorption costing can be written as follows 2absorption costing vs variable costingabsorption costing and variable costing are two different methods of costing that are used to calculate the cost of a product or service while both methods are used to calculate the cost of a product they differ in the types of costs that are included and the purposes for which they are used the differences between absorption costing and variable costing lie in how fixed overhead costs are treated under absorption costing all manufacturing costs both direct and indirect are included in the cost of a product this means that the cost of each unit of a product includes not only the direct costs of producing that unit such as raw materials and labor but also a portion of the indirect costs that were incurred in the production process such as overhead expenses absorption costing is typically used for external reporting purposes such as calculating the cost of goods sold for financial statements variable costing on the other hand only includes direct costs in the cost of a product indirect costs or overhead expenses are not included in the cost of the product under variable costing instead they are treated as a period expense and are recorded in the income statement in the period in which they are incurred variable costing is typically used for management decision making and planning purposes as it provides a more accurate representation of the incremental costs associated with producing an additional unit of a product variable costing does not determine a per unit cost of fixed overheads while absorption costing does variable costing will yield one lump sum expense line item for fixed overhead costs when calculating net income on the income statement absorption costing will result in two categories of fixed overhead costs those attributable to the cost of goods sold and those attributable to inventory image by sabrina jiang investopedia 2021absorption costing results in a higher net income compared with variable costing advantages and disadvantages of absorption costingassets such as inventory remain on the entity s balance sheet at the end of the period because absorption costing allocates fixed overhead costs to both cost of goods sold and inventory the costs associated with items still in ending inventory will not be captured in the expenses on the current period s income statement absorption costing reflects more fixed costs attributable to ending inventory absorption costing ensures more accurate accounting for ending inventory because the expenses associated with that inventory are linked to the full cost of the inventory still on hand in addition more expenses are accounted for in unsold products which reduces actual expenses reported in the current period on the income statement this results in a higher net income calculation compared with variable costing calculations because absorption costing includes fixed overhead costs in the cost of its products it is unfavorable compared with variable costing when management is making internal incremental pricing decisions this is because variable costing will only include the extra costs of producing the next incremental unit of a product in addition the use of absorption costing generates a situation in which simply manufacturing more items that go unsold by the end of the period will increase net income because fixed costs are spread across all units manufactured the unit fixed cost will decrease as more items are produced therefore as production increases net income naturally rises because the fixed cost portion of the cost of goods sold will decrease provides a more complete picture of the total cost of a product by including both direct and indirect costs helps in determining the total actual cost of goods sold and the cost of inventory on the balance sheet allows a company to understand the full cost of each product or service it provides may not accurately reflect the incremental costs associated with producing an additional unit of a product as it includes fixed overhead costs that do not vary with production volume can lead to distorted cost data if there are significant changes in production volume may not provide as much information for management decision making as variable costing example of absorption costingassume that abc company makes widgets in january it makes 10 000 widgets of which 8 000 are sold by the end of the month leaving 2 000 still in inventory each widget uses 5 of labor and materials directly attributable to the item in addition there are 20 000 of fixed overhead costs each month associated with the production facility under the absorption costing method abc will assign an additional 2 to each widget for fixed overhead costs 20 000 total 10 000 widgets produced in the month the absorption cost per unit is 7 5 labor and materials 2 fixed overhead costs as 8 000 widgets were sold the total cost of goods sold is 56 000 7 total cost per unit 8 000 widgets sold the ending inventory will include 14 000 worth of widgets 7 total cost per unit 2 000 widgets still in ending inventory | |
what s the difference between variable costing and absorption costing | absorption costing and variable costing treat fixed overhead costs differently absorption costing allocates fixed overhead costs across all units produced for the period variable costing on the other hand adds all fixed overhead costs together and reports the expense as one line item separate from the cost of goods sold or still available for sale in other words variable costing will yield one lump sum expense line item for fixed overhead costs when calculating net income while absorption costing will result in two categories of fixed overhead costs those attributable to the cost of goods sold and those attributable to inventory | |
what are the advantages of absorption costing | the main advantage of absorption costing is that it complies with generally accepted accounting principles gaap which are required by the internal revenue service irs furthermore it takes into account all of the costs of production including fixed costs not just the direct costs and more accurately tracks profit during an accounting period | |
what are the disadvantages of absorption costing | the main disadvantage of absorption costing is that it can inflate a company s profitability during a given accounting period as all fixed costs are not deducted from revenues unless all of the company s manufactured products are sold additionally it is not helpful for analysis designed to improve operational and financial efficiency or for comparing product lines | |
when is it appropriate to use absorption costing | absorption costing is typically used in situations where a company wants to understand the full cost of producing a product or providing a service this includes cases where a company is required to report its financial results to external stakeholders such as shareholders or regulatory agencies absorption costing is also often used for internal decision making purposes such as determining the selling price of a product or deciding whether to continue producing a particular product in these cases the company may use absorption costing to understand the full cost of producing the product and to determine whether the product is generating sufficient profits to justify its continued production | |
what are the types of absorption costing | there are two main types of absorption costing full absorption costing and partial absorption costing the bottom lineabsorption costing is a method of costing that includes all manufacturing costs both fixed and variable in the cost of a product it is also known as full costing or full absorption costing absorption costing is used to determine the cost of goods sold and ending inventory balances on the income statement and balance sheet respectively it is also used to calculate the profit margin on each unit of product and to determine the selling price of the product under absorption costing the fixed manufacturing overhead costs are included in the cost of a product as an indirect cost these costs are not directly traceable to a specific product but are incurred in the process of manufacturing the product the fixed manufacturing overhead costs are allocated to each unit of product based on a predetermined overhead allocation rate which is calculated by dividing the total estimated fixed manufacturing overhead costs by the total number of units that are expected to be produced in addition to the fixed manufacturing overhead costs absorption costing also includes the variable manufacturing costs in the cost of a product these costs are directly traceable to a specific product and include direct materials direct labor and variable overhead | |
what was the 0x zrx protocol | the 0x zero x protocol enabled the peer to peer exchange of assets on the ethereum blockchain it was launched in 2017 by zeroex labs an organization based in san francisco the protocol itself was not by the developer s definition a decentralized exchange it allowed for the creation of decentralized exchanges that can be used in broad applications however the commodities and futures trading commission disagreed it shut down the 0x protocol in september 2023 for operating as an unregistered exchange and its developers were fined 200 000 the history of 0x zrx protocol0x was founded by will warren and amir bandeali in 2017 who launched an initial coin offering in 2017 the ico was a success raising 24 million and another 85 million between two fundraising rounds between 2021 and 2022 1the secondary protocol was created on ethereum to act as a settlement layer for trading erc 20 tokens erc 20 tokens are fungible exchangeable tokens that follow the standards set by ethereum request for comment 20 in 2021 0x launched the 0x decentralized autonomous organization dao the organization that would allow participants to govern the progress of the project 2but in september 2023 the commodities and futures trading commission filed and settled charges against zeroex inc along with two other digital asset exchanges opyn inc and deridex charges included failing to register as a futures commission merchant failing to register as a swap execution facility and illegally offering leveraged and margined retail commodity transactions 3zeroex was ordered to pay 200 000 in fines and cease operating as an exchange as of june 26 2024 the project community was very small and the 0x project s reddit page had been abandoned 45as of this writing 0x the zrx token had a market cap of 307 6 million and a 24 hour trading volume of 10 5 million it had a circulating supply of 847 5 million zrx 6 | |
how the 0x zrx protocol worked | the protocol set up a system of makers takers and relayers makers were the users who placed orders on the exchange proxy and waited for a match providing liquidity takers placed orders that were immediately matched removing liquidity relayers were network participants who maintained the order book acting similarly to an exchange the 0x protocol s message format was composed of a set of data fields that carried vital information such as the digital asset or token to be traded the price value of the transaction the expiration time and the defined identities of the transacting parties 7smart contracts took care of the necessary business logic for generating sending receiving and processing the data linked to the trading activity zrx was 0x s native governance and staking token zrx owners had a say in how the protocol evolved and token holders could also stake their tokens to earn eth the ethereum token ether liquidity rewards the future of 0x zrk 0x s future is somewhat unclear as its market cap and price have continued a general downward trend since its introduction having been shut down by regulators in 2023 the protocol and its few remaining fans don t have many options unless it transitions from exchange services or registered with the cftc | |
what is the 0x protocol | 0x was a protocol for the ethereum blockchain it facilitated peer to peer exchanges of assets built using ethereum the project was shut down by the cftc for operating as an unregistered exchange and abandoned by its developers | |
what is a 0x exchange proxy | a 0x exchange proxy was an entity that allowed applications to be developed using the protocol | |
what is the price prediction for 0x protocol | although the project has been abandoned there is still zrx trading activity however as there is no active development zrx is likely to continue to decline in market value the bottom linethe 0z protocol allowed users to exchange assets using the ethereum blockchain in 2023 the cftc shut it down for operating as an unregistered exchange the comments opinions and analyses expressed on investopedia are for informational purposes only read our warranty and liability disclaimer for more info as of the date this article was written the author does not own zrx | |
what is 1 10 net 30 | the 1 10 net 30 calculation is a way of providing cash discounts on purchases it means that if the bill is paid within 10 days there is a 1 discount otherwise the total amount is due within 30 days understanding 1 10 net 30the 1 10 net 30 calculation represents the credit terms and payment requirements outlined by a seller the vendor may offer incentives to pay early to accelerate the inflow of cash this is particularly important for cash strapped businesses or companies with no revolving lines of credit companies with higher profit margins are more likely to offer cash discounts although the numbers are always interchangeable across vendors the standard structure for offering a payment discount is the same the first number will always be the percentage discount this figure will indicate the total percentage discount on the invoice prior to shipping or taxes that may be discounted upon early payment special considerationsdiscount terms like 1 10 net 30 are virtual short term loans this is because if the discount is not taken the buyer must pay the higher price as opposed to paying a reduced cost in effect the difference between these two prices reflects the discount lost which can be reported as a percentage this percentage is called the cost of credit | |
when the credit terms are 1 10 net 30 the net result becomes in essence an interest charge of 18 2 upon the failure to take the discount | companies with higher profit margins are more likely to offer cash discounts the accounting entry for a cash discount taken may be performed in two ways the gross method of purchase discounts assumes the discount will not be taken and will only input the discount upon actual receipt of payment within the discount period therefore the entire amount of receivable will be debited when payment is received the receivable will be credited in the amount of the payment and the difference will be a credit to discounts taken the alternative method is called the net method for a discount of 1 10 net 30 it is assumed that the 1 discount will be taken this results in a receivable being debited for 99 of the total cost example of 1 10 net 30for example if 1 000 1 10 net 30 is written on a bill the buyer can take a 1 discount 1 000 0 01 10 and make a payment of 990 within 10 days or pay the entire 1 000 within 30 days if the invoice is not paid within the discount period no price reduction occurs and the invoice must be paid within the stipulated number of days before late fees may be assessed the second number is always the number of days of the discount period in the example above the discount period is 10 days finally the third number always reflects the invoice due date | |
what does 1 10 net 30 represent | the 1 10 net 30 calculation represents the credit terms and payment requirements outlined by a seller the vendor may offer incentives to pay early to accelerate the inflow of cash | |
is 1 10 net 30 a loan | yes discount terms like 1 10 net 30 are virtual short term loans if the discount is not taken the buyer must then pay the higher price as opposed to paying a reduced cost | |
what do the numbers in a 1 10 net 30 type calculation stand for | the first number is always the percentage of the discount the second number is always the number of days of the discount period the third number always reflects the invoice due date the bottom linethe 1 10 net 30 calculation provides cash discounts on purchases if the bill is paid within 10 days there is a 1 discount otherwise the total amount is due within 30 days | |
what is form 10 k | form 10 k is a comprehensive report filed annually by a publicly traded company about its financial performance and is required by the u s securities and exchange commission sec some of the information a company is required to document in the 10 k includes its history organizational structure financial statements earnings per share subsidiaries executive compensation and any other relevant data investopedia yurle villegasunderstanding form 10 kbecause of the depth and nature of the information they contain 10 ks are fairly long and tend to be complicated but investors need to understand that this is one of the most comprehensive and most important documents a public company can publish on a yearly basis the more information they can gather from the 10 k the more they can understand the company canadian companies will file sec form 40 f to provide this information the government requires companies to publish 10 k forms so investors have fundamental information about companies so they can make informed investment decisions this form gives a clearer picture of everything a company does and what kinds of risks it faces investors in the know are aware that 10 ks can also be retrieved by using the company search function through the sec s edgar database 1the 10 k includes five distinct sections a 10 k filing also includes signed letters from the company s chief executive officer and chief financial officer in it the executives swear under oath that the information included in the 10 k is accurate 3 these letters became a requirement after several high profile cases involving accounting fraud following the dot com bust 410 k filings and deadlinesnotably 10 k filings are public information and readily available through a number of sources in fact the vast majority of companies include them in the investor relations section of their website the information included in a 10 k can be difficult to move through but the more familiar investors become with the layout and the type of information included it will likely become easier to identify the most important details filing deadlines for the 10 k vary based on the size of the company according to the sec companies with a public float shares issued to the public that are available to trade of 700 million or more must file their 10 k within 60 days after the end of their fiscal year companies with a float between 75 million and 700 million have 75 days while companies with less than 75 million in their float have 90 days 5purpose of form 10 kthe primary purpose of filing a form 10 k is to provide comprehensive transparent information about how a company is doing because this information is useful to a variety of people the sec requires certain information to be presented in a certain way at a very high level it s fair to say form 10 k s purpose can be broken down into the following five categories which slightly overlap but are more high level than the five categories listed above form 10 k is prescribed by the 1934 securities exchange act 5who files form 10 kform 10 k is required to be filed by all publicly traded companies in the united states this requirement applies to companies listed on u s stock exchanges such as the new york stock exchange 6 the sec imposes this filing requirement to ensure transparency and accountability in the financial markets allowing investors and other stakeholders to access relevant information about the company s operations financial condition and performance 7the filing of form 10 k is not limited to large corporations it applies to companies of all sizes that meet the criteria for being publicly traded this includes both domestic and foreign companies whose securities are listed on u s exchanges or are registered with the sec additionally certain smaller reporting companies may file a streamlined version of the form 10 k known as form 10 ksb or form 10 kt 8 note that in order to file this alternative version a company has to meet some eligibility requirements penalties for form 10 k noncompliancethere are penalties for not filing a form 10 k on time these penalties can vary depending on the severity of the violation and the circumstances surrounding the late filing in most cases companies pay a fee for non compliance 9failure to file required periodic reports can result in the loss of good standing with stock exchanges and other regulatory bodies this could lead to delisting from stock exchanges or temporary suspensions of 10 trading days 10 in addition the sec may take legal and regulatory actions against companies that repeatedly fail to meet filing deadlines or comply with disclosure requirements these actions can include enforcement proceedings investigations fines and sanctions against the company its officers directors or other responsible parties 11on the softer side of the consequences late or incomplete filings can erode investor confidence and trust in the company s management investors may perceive delayed filings as a red flag indicating potential financial problems lack of transparency or poor internal controls there s little reason for a form 10 k to be filed late and investors may and probably should be curious about the reasons behind any non compliance limitations of form 10 kwhile form 10 k reports a wealth of useful information it does have its downsides these limitations include but aren t necessarily limited to forms 10 q vs form 8 kalong with the 10 k the sec requires that public companies regularly file forms 10 q and 8 k form 10 q must be submitted to the sec on a quarterly basis this form is a comprehensive report of a company s performance and includes relevant information about its financial position unlike the 10 k the information in the 10 q is usually unaudited the company is only required to file it three times a year as the 10 k is filed in the fourth quarter 123the form 8 k though is required by the sec whenever companies announce major events of which shareholders must be made aware these events may include but aren t limited to sales acquisitions delistings departures and elections of executives as well as changes in a company s status or control bankruptcies information about operations assets and any other relevant news 13form 10 k vs annual reportthe form 10 k and the annual report serve distinct purposes and cater to different audiences the form 10 k is a regulatory filing mandated by the sec on the other hand the annual report represents a broader communication tool utilized by companies to engage with a wider range of stakeholders while it may include form 10 k as its core financial and regulatory component the annual report often incorporates additional elements such as narrative descriptions graphics photos and other visually appealing features these elements aim to provide a more reader friendly and engaging format for shareholders employees customers and other stakeholders for example companies may have high quality photographs or graphic designs as part of the introduction to their annual report the intention is to make the annual report visually attractive to entice readership form 10 k is not meant to look nearly as pretty unlike the form 10 k which is subject to specific regulatory requirements and accounting standards the annual report is not bound by such constraints instead it allows companies greater flexibility in crafting a narrative that aligns with their objectives and corporate identity through the annual report companies seek to showcase their accomplishments company values and vision to stakeholders in many ways it s fair to call an annual report a marketing and communication tool whereas the form 10 k is much more of a regulatory compliance document | |
what is form 10 k | form 10 k is a comprehensive annual report filed by publicly traded companies with the u s sec it provides a detailed summary of the company s financial performance this form is required by the sec to ensure transparency and provide investors with essential information to make informed decisions | |
when is form 10 k due | the due date for form 10 k depends on the size of the company large accelerated filers must file within 60 days after the end of their fiscal year other companies with smaller float may file within 75 days or 90 days after their fiscal year | |
where can i find a company s form 10 k | a company s form 10 k can be found on the sec s edgar electronic data gathering analysis and retrieval database which is accessible to the public online additionally companies often provide links to their 10 k filings on their investor relations websites | |
how do i read a form 10 k | reading a form 10 k involves understanding its structure and the significance of its various sections start with the business overview to get a sense of what the company does then review the risk factors to understand potential challenges move onto the md a for insights into management s perspective on financial results then review the actual financial numbers to understand actual company performance the bottom lineform 10 k is an annual comprehensive report filed by publicly traded companies with the sec detailing their financial performance and business operations it includes audited financial statements management s discussion and analysis risk factors and other important disclosures this document provides investors and stakeholders with crucial information to assess the company s financial health and is required by regulatory bodies | |
what is a 10 k wrap | a 10 k wrap is a summary report of a company s annual performance that bundles the 10 k report required by the securities and exchange commission sec with additional commentary from the company covering such things as the corporate vision letter to shareholders and business overview among other topics the 10 k wrap is often released instead of a traditional annual report and generally contains fewer images and comments from management understanding a 10 k wrapform 10 k is a detailed annual report that is required to be submitted to the u s securities and exchange commission sec the filing provides a comprehensive summary of a company s performance for the year it is more detailed than the annual report that is sent to shareholders during the annual meeting to elect directors sec filing 10 k outlines the company s history equity subsidiaries organizational structure audited financial statements and other relevant information 1the most significant difference between the traditional annual report and the 10 k wrap is how the information is presented and how much additional information is included above the required 10 k information the traditional annual report has a greater focus on comments from the company and the document includes more images and graphs to communicate performance as well as a list of corporate objectives of the company by contrast the 10 k wrap is essentially the 10 k filed with the sec and some additional editorial from the company but not nearly as much as the annual report it usually has a lower production cost because it is often printed on lower quality paper the 10 k wrap is typically made available in print and digital formats to maximize access for shareholders investors and analysts elements of a 10 k wrapthe basic elements of a 10 k wrap typically include a summary of the company s financial results for the previous year and an overview of its plans for upcoming quarters including spending and debt level forecasts a 10 k plan can also include an elaborate cover design with perhaps a theme that focuses on investors and analysts involved in the company s projects for the upcoming year graphics in the 10 k wrap will usually provide a brief overview of the company s financials including revenue net profit costs income and any highlights from the previous year the graphics may also outline the company s geographical reach or other elements of growth 10 k due monday april 18 2022 for the fiscal year ended on jan 31 2022 10 q due tuesday may 10 2022 for the quarterly period ended on march 31 2022 special considerationsas the 10 k wrap has evolved it has come to include more images and content such as a shareholder letter and high quality photographs however pictures will often be kept to a minimum the 10 k wrap document is usually no more than four pages long and could be even shorter depending on what company executives want to see from the 10 k wrap report | |
what is sec form 10 q | sec form 10 q is a comprehensive unaudited report of financial performance that must be submitted quarterly by all public companies to the securities and exchange commission sec it stands in contrast to sec form 10 k which is required to be filed annually and is audited in the 10 q firms are required to disclose relevant information regarding their finances related to their business operations a 10 q must be filed for each of the first three quarters of the company s fiscal year understanding sec form 10 qfederal securities laws mandate that publicly traded companies provide certain information to shareholders and the general public these disclosures may occur periodically or as specific events occur a company utilizes form 10 q one of many required by the sec upon the completion of each quarter to release unaudited financial statements and give an overview of the company s financial situation the exact filing dates depend on the organization s fiscal year but it is necessary to file three 10 q reports each year a 10 q for the final quarter of the year is not required a company files form 10 k an annual report instead this report unlike the 10 q is audited and tends to contain more details 1a company s form 10 q is public information anyone who wishes to examine a company s quarterly report can go to the sec s edgar database you can search by company name ticker symbol or sec central index key cik many companies also post their 10 qs on their websites in an investor relations section sec form 10 q filing deadlinesthe deadline for filing a 10 q varies and depends on the number of outstanding shares a company has 1a company filing a 10 q is classified in one of three categories its category is determined by its public float that is the portion of outstanding stock that is in the hands of the public and not held by officers owners or the government essentially the float is comprised of all of a company s freely traded common stock shares the largest companies are classified as large accelerated filers to fit this classification an organization must have at least 700 million in public float large accelerated filers have 40 days after the close of the quarter to file a 10 q 1accelerated filers are companies with at least 75 million in public float but less than 700 million they also have 40 days to file the 10 q they have a little more time to file the 10 k 1finally non accelerated filers are companies with less than 75 million of public float these companies have 45 days from the end of the quarter to file a 10 q 1source investor govfailure to meet the form 10 q filing deadline | |
when a company fails to file a 10 q by the filing deadline it must make a non timely nt filing of sec form nt 10 q | an nt filing must explain why the deadline has not been met it includes a request for an additional five days to file as long as a company has a reasonable explanation the sec allows late filings within a specified time period common reasons why companies are not able to file on time include mergers and acquisitions m a corporate litigation an ongoing review by corporate auditors or lingering effects from bankruptcy a 10 q filing is considered timely if it is filed within this extension period failure to comply with this extended deadline results in consequences including the potential loss of the sec registration removal from stock exchanges and legal ramifications components of sec form 10 qthere are two parts to a 10 q filing the first part contains relevant financial information covering the period this includes condensed financial statements management discussion analysis of the financial condition of the entity disclosures regarding market risk and internal controls 2the second part contains all other pertinent information this includes legal proceedings unregistered sales of equity securities the use of proceeds from the sale of unregistered sales of equity and defaults upon senior securities the company discloses any other information and includes exhibits in this section form 10 q and the requirement for filing it was established by the securities and exchange act of 1934 the aim was to promote transparency in public companies operations by providing investors with the financial position of companies on an ongoing basis importance of sec form 10 qthe 10 q provides a window into the financial health of a company investors can use the form to get a sense of its quarterly earnings and other elements of its operations and to compare them to previous quarters thus it is a dependable performance tracking tool some areas of interest to investors that are commonly visible in the 10 q include changes to working capital and or accounts receivables factors affecting a company s inventory share buybacks and even any legal risks that a company faces you can compare a close competitor s 10 q to that of a company in which you are invested or considering whether to invest to see how its performance stacks up this will give you an idea of whether it s a strong choice where its weaknesses are and how it could improve other important sec filingsthe 10 q is one of many reports that public companies are required to file with the sec other important and mandated filings include form 10 k the 10 k must be filed once per year and includes the final quarter of the company s performance replacing a fourth quarter 10 q the 10 k summarizes the year often contains more detailed information than an annual report and must be filed within 90 days of the end of a company s fiscal year it generally includes a summary of the company s operations management s financial outlook financial statements and any legal or administrative issues involving the company form 8 k this report is filed if there are any changes or developments to a business that didn t make the 10 q or 10 k reports the 8 k is considered an unscheduled document and may contain information such as press releases if a company disposes of or acquires assets has announcements of executive hiring or departures or goes into receivership this information is filed with an 8 k annual report a company s annual report is filed every year and contains a wealth of company news including but not limited to general information about the company a letter to shareholders from the ceo financial statements and an auditors report this report is submitted a few months after the end of a company s fiscal year the report is available through a company s website or investor relations team and can also be obtained from the sec | |
are public companies required to file form 10 q | yes all u s public companies issuing common shares of stock that trade on exchanges are required to file form 10 q the date by which they have to file varies according to the number of shares expressed in terms of dollar worth that they have outstanding who signs form 10 q according to the sec at least one complete copy of the report filed with the commission and one such copy filed with each exchange must be manually signed on the registrant s behalf by a duly authorized officer of the registrant and by the principal financial or chief accounting officer of the registrant more information is available in the instructions for form 10 q 3must review reports accompany financial statements in a 10 q 10 qs generally are not audited or accompanied by accountants reports sec regulations prohibit companies from making materially false or misleading statements or omitting material information to make disclosures not misleading the sec staff reviews 10 qs and may provide comments to a company where disclosures appear to be inconsistent with the disclosure requirements or deficient in explanation or clarity 4the bottom linesec form 10 q is a report filed by public companies and sent to the sec after the close of each of the first three quarters of every year the final quarter is covered by sec form 10 k an annual report form 10 q can be a valuable research tool for investors because it contains a substantial amount of financial data about a company s quarterly performance as well as information regarding business operations management discussions pertinent market risks and disclosures | |
what is a 10 year treasury note | the 10 year treasury note is a debt obligation issued by the u s government with a maturity of 10 years upon initial issuance a 10 year treasury note pays interest at a fixed rate every six months and pays the face value to the holder at maturity the u s government partially funds itself by issuing these notes understanding 10 year treasury notesthe u s government issues three types of debt securities to fund its obligations treasury bills treasury notes and treasury bonds bills bonds and notes are distinguished by their length of maturity treasury bills t bills have the shortest lengths of time to maturity one year or less the treasury offers t bills with maturities of four eight 13 26 and 52 weeks 1 treasury notes have maturities ranging from one to 10 years 2 bonds are treasury securities with maturities longer than 10 years 3the u s government partially funds itself by issuing 10 year treasury notes treasury notes and bonds pay interest at a fixed rate every six months to maturity they re then redeemed at par value the treasury repays the principal it borrowed t bills are issued at discounts to par and they don t have coupon payments the interest on t bills is the difference between the face value repaid at maturity and the purchase price 1the 10 year note yield as a benchmarkthe 10 year t note is the most widely tracked government debt instrument its yield is frequently used as a benchmark for other interest rates like mortgage and corporate debt commercial interest rates don t follow the 10 year yield however this chart shows a historical example of the 10 year treasury yield from march 2019 to march 2020 the yield steadily declined over this span with expectations that the federal reserve would maintain low interest rates or cut them further the decline in yield accelerated amid growing concerns about the economic effects of the covid 19 pandemic in late february 2020 the decline of the 10 year yield accelerated even further as the federal reserve ordered an emergency rate cut of 50 basis points in early march the yield dropped to a record low of 0 32 before rebounding 4image by sabrina jiang investopedia 2021the 10 year note is undoubtedly a highly significant benchmark for global financial markets a rising yield indicates investor confidence in the economy but also suggests higher borrowing costs potentially slowing economic growth conversely a falling yield may signal economic uncertainty since march 2020 the 10 year treasury yield has had significant fluctuations it hit an all time low of 0 318 amid pandemic induced market uncertainty however the low interest environment ended over the next 18 24 months with several annual peaks in 2023 the federal reserve mainly increased interest rates to curb inflation and control the soaring prices of consumer goods in early 2024 the 10 year treasury yield stood at 4 01 5 | |
what impacts the 10 year treasury yield | several factors influence the 10 year treasury yield it s directly affected by investor confidence in the markets when investors are optimistic about the economy s health they tend to invest in riskier assets reducing demand for treasury notes causing a need to increase their yield conversely in times of economic uncertainty investors often flock to the safety of treasury notes driving up their prices and lowering them inflation is another major influence as we have seen more recently higher inflation can decrease the real return on treasury notes causing yields to rise as investors demand higher returns to offset the erosion of buying power conversely low inflation can lead to lower yields lastly the yield is also affected by monetary policy decisions by the federal reserve for instance when the federal reserve chooses to raise interest rates yields on treasury notes also tend to increase reflecting the higher cost of borrowing the advantages of investing in treasury notesfixed income securities offer important portfolio diversification benefits because their returns aren t correlated with the performance of stocks government debt and the 10 year treasury note in particular are considered among the safest investments its price often but not always moves inversely to the trend of the major stock market indexes central banks tend to lower interest rates in a recession which reduces the coupon rate on new treasurys this then makes older treasury securities with higher coupon rates more desirable another advantage of investing in 10 year treasury notes and other federal government securities is that the coupon payments are exempt from state and local income taxes they re still taxable at the federal level however 6investors can choose to hold treasury notes until maturity or sell them early in the secondary market there s no minimum holding term the disadvantages of investing in treasury notesinvesting in treasury notes while considered safe comes with drawbacks treasury notes can yield less than riskier assets like equity investments or higher yielding corporate bonds this makes them potentially less profitable for investors than alternatives during periods of high inflation fixed interest payments from treasury notes can lose purchasing power if inflation outpaces the yield the real return can turn negative if you are holding longer running notes you need to ensure you understand how inflation will affect your investment an uptick in interest rates could lower the value of existing treasury notes this could result in capital losses should you liquidate your holdings before their maturity date low risk because of government backingeasy to buy and sellpartially free from state and local taxeslower yield compared with other investmentsvulnerability to inflationpotential capital loss if sold before maturity | |
how to buy 10 year treasury bonds | the u s treasury sells its notes bonds and bills through the treasurydirect website sales are done through competitive or noncompetitive bidding with a minimum purchase of 100 with bidding increasing in 100 increments treasury securities can also be bought through a bank or broker 2 | |
how are t notes issued | all t notes are issued electronically so investors cannot obtain paper certificates 2 series i savings bonds are the only treasury securities still issued on paper and they can only be bought on paper with tax refund proceeds 7 | |
when are t notes issued | the treasury issues new t notes of shorter maturities every month however new 10 year notes are only issued in february may august and november the treasury sells additional 10 year notes from the most recent issue in what is known as reopenings in other months reopened notes have the same maturity date and coupon interest rate as the original issue but they have a different issue date and a purchase price that reflects subsequent changes in the market s interest rates 2can i buy treasury bills from my bank yes you can purchase treasury bills from many banks but you may end up paying additional expenses such as sales commissions and other transaction charges over time these fees and expenses can eat into your returns the bottom linea 10 year treasury note pays interest at a fixed rate twice a year and will pay its face value at maturity they are issued by the u s government and provide low risk investments and they re generally tax exempt at the state and local levels t notes can be a good choice for those who prefer not to roll the dice with more iffy investments | |
what is a 100 equities strategy | a 100 equities strategy is a strategy commonly adopted by pooled funds such as a mutual fund that allocates all investable cash solely to stocks only equity securities are considered for investment whether they be listed stocks over the counter stocks or private equity shares understanding a 100 equities strategy100 equities strategies represent portfolios that only select investments from the equities i e stocks universe 100 equity strategies are predominant in the market and encompass a large majority of offerings generally very few funds would be able to deploy all available capital to equity market investments without holding some cash and cash equivalents for transactions and operating activities in practice many 100 equity strategies will have an investment objective or mandate to invest at least 80 in equities the 80 threshold is a formality used in regulatory or registration documentation for the majority of equity funds in the marketplace with many funds deploying anywhere from 90 to 100 to equities 100 equity means that there will be no bonds or other asset classes furthermore it implies that the portfolio would not make use of related products like equity derivatives or employ riskier strategies such as short selling or buying on margin instead 100 equities implies a more focused traditional approach to equity investment special considerationsequities are generally considered a riskier asset class over alternatives such as bonds money market funds and cash a well diversified portfolio of all stocks can protect against individual company risk or even sector risk but market risks will still persist that can affect the equities asset class thus both systemic and idiosyncratic risks are important considerations for aggressive equity investors as a result most financial advice recommends a portfolio that includes both equity and fixed income bond components 100 equities strategy typesin the 100 equity strategy category an investor will find a wide range of sub classes to choose from including those that focus on one or a combination of labels like capital appreciation aggressive growth growth value and income outlined below are some of the characteristics investors can expect from some of the most prominent 100 equity strategies growth investing is a style used by many aggressive equity investors who are comfortable with higher risk investments and seek to take advantage of growing companies the russell 3000 growth index is a broad market index that helps to represent the growth category growth companies offer emerging technologies new innovations or a significant sector advantage that gives them above average expectations for revenue and earnings growth value stocks are often known as long term core holdings for an investor s portfolio these equity funds will rely on fundamental analysis to identify stocks that are undervalued in comparison to their fundamental value investment metrics for value investing often include price to earnings price to book and free cash flow income investing is also a top category for core long term holdings in a portfolio income funds will invest in equities with a focus on current income income from equity investments is primarily focused on mature companies paying steady dividend rates in the income category real estate investment trusts and master limited partnerships are two publicly traded stock categories with unique incorporation structures that require them to pay high levels of income to equity investors 12capitalization is a popular investing strategy for all equity portfolios generally capitalization is broken down by large cap mid cap and small cap large cap companies can offer the lowest volatility as they have established businesses and steady earnings that pay dividends small cap companies on the other hand are usually considered to have the highest risk since they are typically in the early stages of their development | |
what is form 1040 u s individual tax return | form 1040 is the standard internal revenue service irs form that individual taxpayers use to file their annual income tax returns the form contains sections that require taxpayers to disclose their taxable income for the year to determine whether additional taxes are owed or whether the filer will receive a tax refund who can file form 1040 u s individual tax return form 1040 needs to be filed with the irs by april 15 in most years everyone who earns income over a certain threshold must file an income tax return with the irs keep in mind that businesses have different forms to report their profits 12if a united states citizen wants to or needs to file a federal income tax return they need to file form 1040 or a variation of form 1040 mentioned above there are three general conditions to consider regarding whether an individual needs to file first the irs requires individuals with certain levels of gross income to file taxes this threshold varies based on the individual s filing status and age the table below lists the income limits for individuals under 65 years old keep in mind that older taxpayers tend to have higher thresholds and the threshold changes if neither one or both individuals in a marriage are 65 or older 345children and dependents may not be required to file if they can be claimed as a dependent in 2023 if the dependent s unearned income is greater than 1 250 1 300 in 2024 but under 12 500 13 000 in 2024 earned income is greater than 13 850 14 600 in 2024 or gross income meets certain thresholds the dependent must file their own form 1040 67 these rules are slightly different for single dependents as opposed to dependents who are married 8finally some specific situations require an individual to file form 1040 regardless of their income or dependency status some of those situations include but are not limited to 9 | |
how to file form 1040 u s individual tax return | form 1040 is available on the irs website and has two pages that must be filled out form 1040 can be mailed in or e filed tax filers are asked for their filing status along with their personal information such as their name address social security number some information on one s spouse may also be needed and the number of dependents 10the form also asks whether the taxpayer wishes to contribute 3 to presidential campaign funds 10the 1040 income section asks the filer to report wages salary taxable interest capital gains pensions social security benefits and other types of income the new tax legislation eliminated many deductions including unreimbursed employee expenses tax preparation fees and the cost of moving for a job except for military on active duty 1112the form uses what the irs terms a building block approach and allows taxpayers to add only the schedules they need to their tax returns some individuals may need to file one or more of six supplemental schedules with their 1040 in addition to long standing schedules for items like business income or loss 13this depends on whether they re claiming tax credits or owe additional taxes many individual taxpayers however only need to file a 1040 and no schedules types of form 1040taxpayers in certain situations may need to file a different variant of the 1040 form instead of the standard version below are the options certain nonresident aliens or their representatives need to file this form including 14the irs also produces the 1040 ss and 1040 pr the 1040 ss is for residents of american samoa the cnmi guam puerto rico or the u s virgin islands who have net self employment income and do not have to file form 1040 with the u s form 1040 pr is the spanish language equivalent of form 1040 ss 1516this form is used to determine and pay estimated quarterly taxes the estimated tax applies to income that isn t subject to withholding which includes earnings from self employment interest dividends and rents this may also include unemployment compensation pension income and the taxable portion of social security benefits 17this is a statement accompanying a taxpayer s payment for any balance on the amount you owe line of the 1040 or 1040 nr 18if a filer makes a mistake or forgets to include information on any 1040 form form 1040 x is used for making changes to previously filed 1040s 19the irs introduced a new 1040 form in 2019 form 1040 sr which is designed for taxpayers over the age of 65 changes include a larger font no shading shaded sections can be hard to read and a standard deduction chart that includes the extra standard deduction for taxpayers over 65 taxpayers in this age bracket who fill out their taxes online won t see a difference but those who do it on paper will 20standard deductions on form 1040the 1040 income section asks taxpayers for their filing status this filing determines the taxpayer s standard deduction the table below highlights the deductions for the 2023 and 2024 tax years keep in mind that you file 2023 taxes in 2024 and 2024 taxes in 2025 45an additional deduction may be taken by those who are age 65 or older or blind just like the standard deduction these figures are adjusted annually for inflation the standard deduction cannot be taken by an estate or trust an individual who is filing a short return due to a change in accounting periods an individual who was a nonresident alien part of the tax year or a married individual whose spouse is filing separately and itemizing 23additional schedulesas noted above form 1040 uses a variety of additional schedules to help taxpayers report their tax obligations the following schedules are used to compile financial information away from form 1040 to later use form 1040 as the primary source of reporting schedule 1 is used to report additional income or adjustments to income this may include alimony disposition proceeds from the sale of a business educator expenses health savings account hsa contributions or unemployment compensation 24it s important to note that 10schedule 2 is used to report additional taxes one part of schedule 2 reports alternative minimum tax and repayment of excess premium tax credits for insurance bought through health insurance marketplaces 25another part of schedule 2 is used to report self employment taxes medicare taxes taxes on individual retirement accounts iras household employment taxes and other taxes these two parts from schedule 2 are reported on line 17 and line 23 on form 1040 1025schedule 3 is used to report additional tax credits and payments these credits include dependent care expense credits residential energy credits excess social security taxes previously remitted and excess federal income taxes previously remitted 26nonrefundable credits from schedule 3 are reported on line 20 of form 1040 while refundable credits from schedule 3 are reported on line 31 of form 1040 1026schedule a is used to figure out a taxpayer s itemized deduction a taxpayer s federal income liability is most often minimized when choosing the larger of their standard deduction or itemized deduction 27the itemized deduction calculation includes medical expenses dental expenses certain taxes certain interest assessments theft losses and other expenses any input from schedule a is entered into line 12a on form 1040 1027schedule b is used for taxpayers who received greater than 1 500 of taxable interest or ordinary dividends it is also used to report interest from a seller financed mortgage accrued interest from a bond interest or ordinary dividends as a nominee and other similar types of interest input from schedule b is entered into line 2b and line 3b on form 1040 1028schedule c is used to report business income or loss an activity qualifies as a business if the taxpayer is engaged in the activity for the primary purpose of producing income or profit the activity is also considered a business as long as the taxpayer is involved in the activity with regularity and continuity profit from schedule c is entered on schedule 1 line 3 it is also used on schedule se 2924if your business was a sole proprietorship or qualified joint venture and you meet other criteria you can report your business operations using schedule c 30schedule d is used to report taxable income from the sale or exchange of a capital asset this gain may have arisen from an exchange or an involuntary conversion schedule d is also used to report capital gain distributions not otherwise reported on form 1040 as well as nonbusiness bad debts input from schedule d is entered on form 1040 line 7 1031schedule e is used to report various types of additional income or losses this supplemental financial activity ranges from real estate rental income royalties partnerships estates trusts and residual interests in real estate mortgage investment conduits supplemental income figures from schedule e are reported on form 1040 in the income section 1032schedule eic is quite different from other tax schedules the earned income credit is calculated separately from this schedule however schedule eic is used to substantiate the qualification of your qualifying children by remitting to the irs your child s name social security number birth year relationship to you and residency status information from schedule eic is not directly input into form 1040 3334the earned income credit is maximized if a taxpayer has at least three children therefore schedule eic only asks for information on three children additional forms for additional children beyond three are not required 35other notable supplementary schedules to form 1040 include | |
what is form 1040 used for | form 1040 is the primary tax form used by u s taxpayers to file their annual income tax returns taxpayers input their personal information and tax information onto the form then submit the form to the irs for review | |
is form 1040 the same as a w 2 | form 1040 is different from a w 2 a w 2 is a wage and tax statement an employee receives from a company they worked for during the tax year the information listed on the w 2 is used to fill out form 1040 | |
where can i find form 1040 | form 1040 is not a tax statement or form that gets distributed to taxpayers unlike a w 2 or 1099 statement that is mailed by an employer or party you ve contracted with form 1040 is available for download on the irs website in addition free irs filing platforms such as free file fillable forms will provide digital copies last some public courthouses or federal buildings in your community may offer paper copies available for pickup | |
what is the difference between a 1040 and a 1099 | form 1040 and form 1099 are different components of an individual s tax return there are many different types of form 1099 but form 1099 is most commonly given to independent contractors to remit tax information relating to payments they received during the tax year this information is used to complete form 1040 as the financial records listed on form 1099 are input into form 1040 the bottom lineform 1040 is the central part of tax filing for united states citizens it is the tax form that all taxpayer financial statements eventually feed into and support tax schedules branch out of regardless of an individual s filing status or income taxpayers who file taxes will complete some version of form 1040 | |
what was form 1040 a u s individual tax return | form 1040 a of the internal revenue service irs was a simplified version of form 1040 used by u s taxpayers to file an annual income tax return to have been eligible to use form 1040 a an individual needed to meet certain requirements such as not itemizing deductions not owning a business and having a taxable income of less than 100 000 unofficially known as the short form form 1040 a was eliminated for the 2018 tax year in favor of the redesigned form 1040 that debuted that year 1who had to file form 1040 a u s individual tax return most u s taxpayers use irs form 1040 to file their income tax returns form 1040 is a detailed form that offers taxpayers with complex investments itemized deductions multiple tax credits and more than 100 000 in annual income more opportunities to lower their tax liability because additional paperwork is usually required with form 1040 individuals with simpler tax situations previously had the option to use form 1040 a instead 2 form 1040 a was a simplified version of form 1040 the two page form allowed taxpayers to report ordinary income some deductions and credits individuals who fell under any of the five status options single head of household married filing separately married filing jointly or widowed could file their tax returns using the 1040 a though form 1040 a was available to taxpayers of any age and filing status not everyone qualified to use this form 3 tax filers who used 1040 a must have earned less than 100 000 taxable income and not have exercised any incentive stock options iso during the tax year the income reported must have been earned as a wage salary tip capital gain dividend interest income unemployment compensation pension annuity taxable social security and railroad retirement benefit taxable scholarship or grant and alaska permanent fund dividend any other form of income such as business income needed to be reported on the more complex form 1040 1 | |
how did form 1040 a work | form 1040 a also gave taxpayers the opportunity to claim several tax deductions to reduce their taxable income however the only deductions they could claim included student loan interest post secondary tuition and fees classroom expenses and individual retirement account ira contributions taxpayers using form 1040 a could not claim itemized deductions this limitation meant that if an individual qualified for other deductions from sources such as charitable donations or mortgage interest and the total itemized deductible amount was more than the standard deductions it would not have been advantageous for them to use 1040 a 1form 1040 a also could be used to claim tax credits tax credits reduce the bottom line or total tax bill of a taxpayer the credits that could be claimed using this form were the american opportunity tax credit aotc earned income credit eitc child tax and additional child tax credit child and dependent care credit credits for the elderly or disabled and retirement savings contribution credit 3form 1040 a vs form 1040 ezanother variant of form 1040 was form 1040 ez which was even simpler and easier to fill out than form 1040 a and was also eliminated starting with the 2018 tax filing but with form 1040 ez the individual had to file as either a single taxpayer or as married filing jointly they could not claim deductions and could only claim the eic 4 although form 1040 a was slightly more complex than form 1040 ez it was still relatively simple compared to 1040 once their financial situation became complicated with dependents special deductions and credits such as those associated with post secondary education tuition most taxpayers needed to switch from filing with the 1040 ez to the 1040 a the redesigned form 1040 that debuted with the 2018 tax year is designed to be much simpler to use than its predecessor for this reason the irs eliminated both form 1040 a and form 1040 ez 5 | |
what was form 1040ez income tax return for single and joint filers with no dependents | irs form 1040ez income tax return for single and joint filers with no dependents was the shortened version of the internal revenue service irs form 1040 this form was for taxpayers with basic tax situations and offered a fast and easy way to file income taxes the form was discontinued as of the 2018 tax year in favor of the redesigned form 1040 1eligibility for form 1040ezto use the form a taxpayer had to have taxable income of less than 100 000 less than 1 500 of interest income and claim no dependents 2 other requirements for filing the form 1040ez included for most individuals the 1040ez was the first tax form they ever completed consider a typical high school student employed part time provided they met the income qualifications the 1040ez was likely to be the most straightforward and appropriate form to file anyone who hasn t filed a tax return using form 1040ez for tax years 2017 and earlier can still do so by going to the irs website limitations of form 1040ezform 1040ez was ultimately scrapped due to the limitations of the form the irs opted for the building block approach of allowing taxpayers to more easily add allowances or credits as applicable to their return in addition form 1040ez had several other drawbacks first the form could only be used by those below a certain amount of income and types of income anyone who had income from sources other than wages salaries tips taxable scholarships or fellowship grants could not use form 1040ez this precluded any taxpayer who received foreign income or filed using a foreign address from using the form in addition any taxpayer hoping to claim a dependent could also not use form 1040ez because of the simplistic nature of form 1040ez taxpayers were not allowed to itemize their deductions nor were they able to take other types of deductions such as the student loan interest deduction or deductions for ira contributions the form also failed to allow taxpayers to report their health coverage those who use form 1040ez were required to separately report their health coverage status form 1040ez vs form 1040form 1040ez had only a few credits or deductions available to taxpayers filers were able to include an earned income credit eic and elect nontaxable combat pay 2for most tax years form 1040 had 80 more lines than form 1040ez one significant difference was that form 1040 had fields to include information about dependents while 1040ez did not allow individuals to claim dependents similar to the standard form the ez version had sections to record wages salaries and tips and taxable interest under 1 500 the filer was also able to include unemployment compensation payments 34the first year that form 1040ez was introduced 5form 1040ez allowed filers to claim income from wages tips salaries taxable grants or scholarships the alaska permanent fund and unemployment compensation 4 form 1040 though had at least 16 income categories 3categories available on the standard form included dividend payments retirement account distributions and farm and rental income form 1040 also allowed the entry of social security benefits alimony and other forms of income this form also had a long list of deductions ranging from education costs to healthcare savings plan contributions 3transition away from form 1040ezin 2018 the irs replaced forms 1040a and 1040ez with a redesigned form 1040 this new form 1040 included six new numbered schedules in addition to the existing ones like schedule a many people now may only need to file the simplified form 1040 others can file form 1040 with additional forms for their specific needs 6the forms were changed in collaboration with several stakeholders according to the irs the irs worked closely with its partners in the tax return preparation and tax software industries to prepare for tax reform and tax form changes affecting tax year 2018 including the form 1040 this ongoing collaboration ensures taxpayers can continue to rely on the irs tax professionals and tax software programs when it s time to file their tax returns 6 | |
is the 1040ez tax form still in use | the 1040ez tax form was eliminated in 2018 and replaced with the redesigned form 1040 1 | |
is there a form 1040ez for 2022 or 2023 | no the irs no longer publishes form 1040ez although it can still be used for tax years 2017 and earlier | |
what was the 1040ez tax form used for | form 1040ez was used for taxpayers who fell into very basic income categories for most years that 1040ez was published it could only be used by taxpayers below age 65 with no dependents and very little interest income this form also had fewer tax credits and deductions than the full length 1040 form meaning that it was generally less appropriate for taxpayers with a higher income | |
what is the difference between irs forms 1040 1040a and 1040ez | form 1040a was a simplified tax form for taxpayers with an income below 100 000 who did not exercise any incentive stock options throughout the year 7 all three were eliminated in the 2018 tax year and replaced with a redesigned form 1040 the bottom linethe irs previously allowed for taxpayers to select a specific form 1040 to use based on the complexity of their tax return the simplest form for the most straight forward returns could use form 1040ez however the form was discontinued in 2018 and all taxpayers must use form 1040 as part of their annual filing | |
what is sec release ia 1092 | sec release ia 1092 is a release from the securities exchange commission sec that provides uniform interpretations of how state and federal adviser laws apply to those that provide financial services 1sec release ia 1092 builds on the investment advisers act of 1940 or the advisers act that congress enacted to protect persons who rely on investment advisers for advice on purchasing and selling securities understanding sec release ia 1092sec release ia 1092 is the result of a 1987 collaboration between the securities exchange commission sec on the federal side and the north american securities administrators association nasaa on the state side these organizations issued ia 1092 in 1987 as a memo in response to the proliferation of financial planning and investment advice professionals in the 1980s the act reaffirmed the definition of an investment adviser ia as described in sec release ia 770 and added some refinements 1with regard to sports or entertainment agents those individuals that negotiated contracts but did not render investment advice were excluded from the definition of an investment adviser sec release ia 1092 and the investment advisers act of 1940the investment advisers act of 1940 defines an investment adviser as any person who either directly or indirectly through writings engages in the business of advising others on the value or profitability of securities and receives compensation for this guidelines for the investment advisers act of 1940 can be found in title 15 section 80b 1 of the united states code which notes that investment advisers are of national concern due to 2 | |
what is the 11th district cost of funds index | the 11th district cost of funds index cofi is a monthly weighted average of the interest rates paid on checking and savings accounts offered by financial institutions operating in arizona california and nevada it is one of many indices used by mortgage lenders to adjust the interest rate on adjustable rate mortgages arm and was launched in 1981 with an arm mortgage the interest rate on a mortgage moves up and down along with some standard interest rate chosen by the lender and cofi is one of the most popular indices in the western states published on the last day of each month the cofi represents the cost of funds for western savings institutions that are members of federal home loan bank of san francisco a self regulatory agency and satisfy the bank s criteria for inclusion in the index understanding the 11th district cofithe 11th district cost of funds index cofi is computed using several different factors with interest paid on savings accounts comprising the largest weighting in the average as a result the index tends to have low volatility and follow market interest rate changes somewhat slowly it is generally regarded as a two month lagging indicator of market interest rates the interest rate on a mortgage will not match the cofi rather the arm rate is typically 2 to 3 higher than cofi depending on the borrower s credit history the size and terms of the loan the ability of the borrower to negotiate with the bank and many other factors because it is computed using data from three western states the cofi is primarily used in the western u s while the 1 year treasury index is the measure of choice in the eastern region on april 30 the federal home loan bank of san francisco announced the cofi for march 2018 of 0 814 slightly lower than february | |
what is a 125 loan | a 125 loan is a type of leveraged loan typically a mortgage used to refinance a home which allows a homeowner to borrow an amount equal to 125 of their property s appraised value for example if a home is worth 300 000 then a 125 loan would give the borrower access to 375 000 in funds | |
how a 125 loan works | in financing terminology a 125 loan has a loan to value ltv ratio of 125 the ltv ratio which compares the size of a loan relative to the appraised value of the property that serves as security is used by lenders to judge a loan s default risk a 125 loan is considered riskier than one with an ltv ratio of less than 100 in fact with conventional mortgages the loan size does not typically exceed 80 of a property s value therefore according to the risk based pricing method used by lenders a loan with an ltv ratio of 125 will carry a higher interest rate than one with a lower ltv ratio as much as double in some instances using a 125 loan for refinancinghomeowners who take out a 125 loan usually do so when refinancing their homes to gain access to more cash than they would have available from their home equity their motive might be to use the loan to pay off other debts that carry even higher interest rates such as credit cards but because 125 loans have high interest rates and may also have additional fees anyone who is considering one should plan to shop around for the best terms they can get if your goal is to obtain cash to pay off other debt and you are unable to qualify for a 125 loan or you decide that you simply don t want one then you might still consider a home equity loan you won t get as much cash out of it but the interest rate is likely to be considerably lower and you can use it to pay off at least a portion of your high interest debt another option would be to do a cash out refinance advantages and disadvantages of 125 loansthe advantage of a 125 loan is that it can allow a homeowner especially one who has not accumulated too much home equity or whose property has actually declined in value to obtain more cash than they otherwise could the disadvantage to borrower and lender alike is the added risk compared with a smaller loan the borrower will be on the hook for more debt and the lender will face added risk in case of a default if the borrower does default the lender can foreclose on the property and sell it but the lender is very unlikely to get all of its money back history of 125 loansthe 125 loans first became popular during the 1990s in some cases geared toward low risk borrowers with high credit scores who wanted to borrow more than their available home equity along with other factors 125 loans played a role in the 2007 08 housing crisis the crash of real estate markets around the country kicked off by the subprime mortgage meltdown left many people underwater that is they owed more money on their mortgage than their home was actually worth 3as home values dropped some homeowners who wanted to refinance found that they no longer had enough equity in their homes to qualify for a new loan moreover they could not recoup their losses even if they managed to sell the home the now expired federal home affordable refinance program harp was introduced in march 2009 as a way to offer relief it allowed homeowners whose homes were underwater but who were otherwise in good standing and current with their mortgages to apply for refinancing through harp homeowners who owed up to 125 of the value of their homes could refinance at lower rates to help them pay off their debts and get on sounder financial footing 45originally homeowners who owed more than that percentage could not apply but eventually even the 125 ltv ceiling was removed allowing still more homeowners to apply for harp loans after being extended several times harp ended in december 2018 6 | |
what does 125 financing mean | typically when refinancing a home a homeowner can take out a 125 loan meaning that they can borrow an amount equal to 125 of the home s appraised value this type of financing comes into play when the house is worth less than what is owed on it can you get a 90 ltv a 90 ltv means a 90 loan to value ratio this is a comparison between your mortgage and the value of your home so for example a 300 000 home and a 270 000 mortgage would have a 90 loan to value ratio to achieve this you would need a downpayment of 10 of the home s value 30 000 in the u s most homes require a 20 downpayment in this example that would result in an ltv of 80 can i take equity out of my house without refinancing yes you can take equity out of your house without refinancing ways to do this include home equity loans home equity lines of credit and home equity investments | |
what is a 12b 1 fee | a 12b 1 fee is an annual marketing or distribution fee on a mutual fund the 12b 1 fee is considered to be an operational expense and as such is included in a fund s expense ratio it is generally between 0 25 and 0 75 the maximum allowed of a fund s net assets the fee gets its name from a section of the investment company act of 1940 understanding 12b 1 feesback in the early days of the mutual fund business the 12b 1 fee was thought to help investors it was believed that by marketing a mutual fund its assets would increase and management could lower expenses because of economies of scale this has yet to be proven with mutual fund assets passing the 10 trillion mark and growing steadily critics of this fee are seriously questioning the justification for using it today the 12b 1 fee is mainly used to reward intermediaries for selling a fund s shares as a commission paid to salespersons it is currently believed to do nothing to enhance the performance of a fund in 2015 the securities and exchange commission sec began examining the use of 12b 1 fees to determine if the rules for charging these fees are being adhered to and the presence of such fees is being properly disclosed 12b 1 fee broken downthe 12b 1 fee can be broken down into two distinct charges the distribution and marketing fee and the service fee total 12b 1 fees charged by a fund are limited to 1 annually the distribution and marketing piece of the fee is capped at 0 75 annually while the service fee portion of the fee can be up to 0 25 use of 12b 1 in broker sold sharesclass b and class c shares of broker sold funds typically have 12b 1 fees but they may also be charged on no load mutual fund shares and class a broker sold shares class a shares which usually charge a front end load but no back end load may come with a reduced 12b 1 expense but normally don t come with the maximum 1 fee class b shares which typically carry no front end but charge a back end load that decreases as time passes often come with a 12b 1 fee class c shares usually have the greatest likelihood of carrying the maximum 1 12b 1 fee the presence of a 12b 1 fee frequently pushes the overall expense ratio on a fund to above 2 the calamos growth fund is an example of a fund that carries a smaller 0 25 12b 1 fee on its class a shares and charges the maximum 1 12b 1 fee on its class c shares | |
what 12b 1 fees are used for | the distribution fee covers marketing and paying brokers who sell shares they also go toward advertising the fund and mailing fund literature and prospectuses to clients shareholder service fees another form specifically pay for the fund to hire people to answer investor inquiries and distribute information when necessary though these fees may be required without the adoption of a 12b 1 plan another category of fees that can be charged is known as other expenses other expenses can include costs associated with legal accounting and administrative services they may also pay for transfer agent and custodial fees | |
what is a 12b 1 fund | a 12b 1 fund is a mutual fund that charges its holders a 12b 1 fee a 12b 1 fee pays for a mutual fund s distribution and marketing costs it is often used as a commission to brokers for selling the fund 12b 1 funds take a portion of investment assets held and use them to pay expensive fees and distribution costs these costs are included in the fund s expense ratio and are described in the prospectus 12b 1 fees are sometimes called a level load understanding 12b 1 fundsthe name 12b 1 comes from the investment company act of 1940 s rule 12b 1 which allows fund companies to act as distributors of their own shares rule 12b 1 further states that a mutual fund s own assets can be used to pay distribution charges distribution fees include fees paid for marketing and selling fund shares such as compensating brokers and others who sell fund shares and paying for advertising the printing and mailing of prospectuses to new investors and the printing and mailing of sales literature the sec does not limit the size of 12b 1 fees that funds may pay but under finra rules 12b 1 fees that are used to pay marketing and distribution expenses as opposed to shareholder service expenses cannot exceed 0 75 of a fund s average net assets per year 12b 1 feessome 12b 1 plans also authorize and include shareholder service fees which are fees paid to persons to respond to investor inquiries and provide investors with information about their investments a fund may pay shareholder service fees without adopting a 12b 1 plan if shareholder service fees are part of a fund s 12b 1 plan these fees will be included in this category of the fee table if shareholder service fees are paid outside a 12b 1 plan then they will be included in the other expenses category discussed below finra imposes an annual 0 25 cap on shareholder service fees regardless of whether these fees are authorized as part of a 12b 1 plan originally the rule was intended to pay advertising and marketing expenses today however a very small percentage of the fee tends to go toward these costs 0 75 is the current maximum amount of a fund s net assets that an investor can be charged as a 12b 1 fee special considerations12b 1 funds have fallen out of favor in recent years the growth in exchange traded fund etf options and the subsequent growth of low fee mutual fund options has given consumers a wide range of option notably 12b 1 fees are considered a dead weight and experts believe consumers who shop around can find comparable funds to ones charging 12b 1 fees | |
what is a 12b 1 plan | a 12b 1 plan is a plan structured by mutual fund companies for the distribution of funds through intermediaries 12b 1 plans provide mapping for the partnerships between distributors and intermediaries who help to ensure the sale of a fund sales commission schedules and 12b 1 distribution expenses are the primary components driving a 12b 1 plan understanding the 12b 1 plan12b 1 plans facilitate the partnerships between distributors and intermediaries offering mutual fund shares 12b 1 plans are primarily focused on open end mutual funds which have multiple class structures for sales charges and distribution expenses mutual fund companies consider two types of 12b 1 charges in their 12b 1 plans sales commissions and 12b 1 expenses sales commissionssales commission schedules are structured to provide compensation to intermediaries for transacting mutual funds these partnerships can help to increase demand for funds by being marketed from a full service broker dealer who facilitates the transaction for a sales load fee these fees are paid to the broker and are not associated with annual fund operating expenses sales loads are structured to vary across share classes share classes can include front end back end and level load sales charges these sales charges are associated with individual retail share classes which typically include class a b and c shares 1 12b 1 expenses12b 1 expenses paid from the mutual fund to distributors and intermediaries are also a key part of a 12b 1 plan to market and distribute open end mutual fund shares mutual fund companies work with distributors to get their funds listed with discount brokerages and financial advisor platforms distributors help fund companies partner with the full service brokers that transact their funds at the agreed upon sales load schedule mutual fund companies will pay 12b 1 fees from a mutual fund to compensate distributors 2 in some cases funds may also be structured with a low level load that is paid to financial advisors annually during the course of an investor s holding period financial industry legislation typically restricts 12b 1 fees to 1 of the current value of the investment on an annual basis but fees generally fall somewhere between 0 25 and 1 in most cases fund companies will have higher 12b 1 fees on share classes paying a lower sales charge and lower 12b 1 fees on share classes with higher sales charges this helps to balance out the compensation paid to intermediary brokers while also providing for payment to distribution partners 3 disclosuremutual fund companies are required to provide full disclosure on their sales load schedules and 12b 1 annual fund expenses in the fund s prospectus the prospectus is one aspect of documentation required for the mutual fund s registration and is also the key offering document providing information on the fund for investors 4 12b 1 plans and any changes to their expense structuring must be approved by the fund s board of directors and amended in its prospectus filed with the securities and exchange commission | |
what is the 130 30 strategy | the 130 30 strategy often called a long short equity strategy refers to an investing methodology used by institutional investors a 130 30 designation implies using a ratio of 130 of starting capital allocated to long positions and accomplishing this by taking in 30 of the starting capital from shorting stocks the strategy is employed in a fund for capital efficiency it uses financial leverage by shorting poor performing stocks and with the cash received by shorting those stocks purchasing shares that are expected to have high returns often investors will mimic an index such as the s p 500 when choosing stocks for this strategy understanding the 130 30 strategyto engage in a 130 30 strategy an investment manager might rank the stocks used in the s p 500 from best to worse on expected return as signaled by past performance a manager will use a number of data sources and rules for ranking individual stocks typically stocks are ranked according to some set selection criteria for example total returns risk adjusted performance or relative strength over a designated look back period of six months or one year the stocks are then ranked best to worst from the best ranking stocks the manager would invest 100 of the portfolio s value and short sell the bottom ranking stocks up to 30 of the portfolio s value the cash earned from the short sales would be reinvested into top ranking stocks allowing for greater exposure to the higher ranking stocks 130 30 strategy and shorting stocksthe 130 30 strategy incorporates short sales as a significant part of its activity shorting a stock entails borrowing securities from another party most often a broker and agreeing to pay an interest rate as a fee a negative position is subsequently recorded in the investor s account the investor then sells the newly acquired securities on the open market at the current price and receives the cash for the trade the investor waits for the securities to depreciate and then re purchases them at a lower price at this point the investor returns the purchased securities to the broker in a reverse activity from first buying and then selling securities shorting still allows the investor to profit short selling is much riskier than investing in long positions in securities thus in a 130 30 investment strategy a manager will put more emphasis on long positions than short positions short selling puts an investor in a position of unlimited risk and a capped reward for example if an investor shorts a stock trading at 30 the most they can gain is 30 minus fees while the most they can lose is infinite since the stock can technically increase in price forever hedge funds and mutual fund firms have begun offering investment vehicles in the way of private equity funds mutual funds or even exchange traded funds that follow variations of the 130 30 strategy in general these instruments have lower volatility than benchmark indexes but often fail to achieve greater total returns 1 |
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