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how does the 80 20 rule work | you may think of the 80 20 rule as simple cause and effect 80 of outcomes outputs come from 20 of causes inputs the rule is often used to point out that 80 of a company s revenue is generated by 20 of its customers viewed in this way it might be advantageous for a company to focus on the 20 of clients that are responsible for 80 of revenues and market specifically to them by doing so the company may retain those clients and acquire new clients with similar characteristics however there s a more fundamental meaning to the 80 20 rule at its core the 80 20 rule is about identifying an entity s best assets and using them efficiently to create maximum value for example a student should try to identify which parts of a textbook will create the most benefit for an upcoming exam and focus on those first this does not imply however that the student should ignore the other parts of the textbook people may not realize that the 80 20 rule is a precept not a hard and fast mathematical law furthermore it is isn t necessary that the percentages equal 100 inputs and outputs simply represent different units the percentages of these units don t have to add up to 100 it s the concept behind the rule that matters there s another way in which the 80 20 rule is misinterpreted namely that if 20 of inputs are most important then the other 80 must not be important this is a logical fallacy the 80 can be important even if the decision is made to prioritize the 20 business managers from all industries use the 80 20 rule to help narrow their focus and identify those issues that cause the most problems in their departments and organizations 80 20 rule backgroundthe 80 20 rule is also known as the pareto principle and is applied in pareto analysis it was first used in macroeconomics to describe the distribution of wealth in italy in the early 20th century it was introduced in 1906 by italian economist vilfredo pareto who is best known for the concepts of pareto efficiency 1pareto noticed that 20 of the pea pods in his garden were responsible for 80 of the peas pareto expanded this principle to macroeconomics by showing that 80 of the wealth in italy was owned by 20 of the population in the 1940s dr joseph juran a prominent figure in the field of operations management applied the 80 20 rule to quality control for business production he demonstrated that 80 of product defects were caused by 20 of the problems in production methods by focusing on and reducing the 20 of production problems a business could increase the overall quality of its products juran referred to this phenomenon as the vital few and the trivial many 2read about investopedia s 10 rules of investing by picking up a copy of our special issue print edition benefits of the 80 20 rulealthough there is little scientific analysis that either proves or disproves the 80 20 rule s validity there is much anecdotal evidence that supports the rule as being essentially valid if not numerically accurate performance results of salespeople in a wide range of businesses have demonstrated success by incorporating the 80 20 rule in addition external consultants who use six sigma and other management strategies have incorporated the 80 20 principle in their practices with good results example of the 80 20 rulea harvard graduate student carla was working on an assignment for her digital communications class the project was to create a blog and monitor its success during the course of a semester carla designed created and launched the site midway through the term the professor conducted an evaluation of the blogs carla s blog though it had achieved some visibility generated the least amount of traffic compared with her classmates blogs carla happened upon an article about the 80 20 rule it said that you can use this concept in any field so carla began to think about how she might apply the 80 20 rule to her blog project she thought i used a great deal of my time technical ability and writing expertise to build this blog yet for all of this expended energy i am getting very little traffic to the site she now understood that even if a piece of content is spectacular it is worth virtually nothing if no one reads it carla deduced that perhaps her marketing of the blog was a greater problem than the blog itself to apply the 80 20 rule carla decided to assign her 80 to all that went into creating the blog including its content her 20 would be represented by a selection of the blog s visitors using web analytics carla focused closely on the blog s traffic she asked herself carla analyzed the answers to these questions and edited her blog accordingly significantly although her analysis did confirm that the blog s biggest problem was its marketing carla did not ignore its content she remembered the common fallacy cited in the article if 20 of inputs are most important then the other 80 must be unimportant and did not want to make that mistake she knew it was necessary to address aspects of the content as well by applying the 80 20 rule to her blog project carla came to understand her audience better and therefore targeted her top 20 of readers more purposefully she reworked the blog s structure and content based on what she learned and traffic to her site rose by more than 220 | |
what s the 80 20 rule | the 80 20 rule is a principle that states 80 of all outcomes are derived from 20 of causes it s used to determine the factors typically in a business situation that are most responsible for success and then focus on them to improve results the rule can be applied to circumstances beyond the realm of business too | |
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 abenomics | abenomics is the nickname for the economic policies set out for japan in 2012 when prime minister shinzo abe came into power for a second time abenomics involved increasing the nation s money supply boosting government spending and enacting reforms to make the japanese economy more competitive the economist outlined the program as a mix of reflation government spending and a growth strategy designed to jolt the economy out of suspended animation that has gripped it for more than two decades 1 understanding abenomicsabenomics refers to the economic policies of a particular politician in the same way that reaganomics or clintonomics does abenomics was promoted as a way to shake japan s economy out of a period of minimal growth and overall deflation japan s economic troubles dated back to the 90s also known as the lost decade it was a period of marked economic stagnation in japan following a massive real estate bubble burst in the 1980s and japan s asset price bubble burst in the early 90s the japanese government responded to the economic fallout by running massive budget deficits to fund pubic works projects in 1998 economist paul krugman argued in a paper titled japan s trap that japan could raise inflation expectations by committing to an irresponsible monetary policy for a period of time thereby cutting long term interest rates and promoting the spending needed to break out of economic stagnation 2 japan adopted some of krugman s recommendations expanding the money supply domestically and keeping interest rates remarkably low this facilitated an economic recovery beginning in 2005 but it ultimately did not stop deflation in july 2006 japan ended its zero rate policy as abe took power in his first term as prime minister abe would resign as prime minister suddenly in 2007 but continued to serve in the ruling party though still having the lowest interest rates in the world japan could not stop deflation the country saw the nikkei 225 drop more than 50 between the end of 2007 and the beginning of 2009 in part due to the economic malaise japan seemed unable to shake abe s party the liberal democratic party of japan ldp lost power to the democratic party of japan abenomics and the three arrowsabe began a second term in december 2012 soon after resuming office he launched his abenomics plan to bolster japan s stagnant economy in a speech following his election abe announced that he and his cabinet would implement bold monetary policy flexible fiscal policy and a growth strategy that encourages private investment and with these three pillars achieve results abe s program consisted of three arrows the first was printing additional currency between 60 trillion yen to 70 trillion yen to make japanese exports more attractive and generate modest inflation roughly 2 the second arrow was new government spending programs to stimulate demand and consumption to stimulate short term growth and to achieve a budget surplus over the long term the third component of abenomics was more complex a reform of various regulations to make japanese industries more competitive and to encourage investment in and from the private sector this included corporate governance reform easing of restrictions on hiring foreign staff in special economic zones making it easier for companies to fire ineffective workers liberalizing the health sector and implementing measures the help domestic and foreign entrepreneurs the proposed legislation also aimed to restructure the utility and pharmaceutical industries and modernize the agricultural sector most important perhaps was the trans pacific partnership tpp which was described by economist yoshizaki tatsuhiko as potentially the linchpin of abe s economic revitalization strategy by making japan more competitive through free trade did abenomics work like all japanese economic policy since the bubble burst abenomics has worked well at times and stalled at others inflation targets have been met and japan s unemployment rate is more than 2 lower than when abe came to power for the second time similarly nominal gdp has increased and corporate pre tax profit and tax revenues have both seen significant rises however japan s periods of success have been halted at times by global economic forces and the country s most significant economic problem a rapidly aging population has increasingly taken the forefront | |
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 is absorption rate in real estate | the absorption rate is used in the real estate market to evaluate the rate at which available homes are sold in a specific market during a given period it is calculated by dividing the number of homes sold in the allotted period by the total number of available homes 1 this equation can also be reversed to identify the time it would take for the supply to be sold | |
what is accelerated depreciation | accelerated depreciation is any method of depreciation used for accounting or income tax purposes that allows greater depreciation expenses in the early years of the life of an asset accelerated depreciation methods such as double declining balance ddb mean there will be higher depreciation expenses in the first few years and lower expenses as the asset ages this is unlike the straight line depreciation method which spreads the cost evenly over the life of an asset understanding accelerated depreciationaccelerated depreciation methods tend to align the recognized rate of an asset s depreciation with its actual use although this isn t technically required this alignment tends to occur because an asset is most heavily used when it s new functional and most efficient because this tends to occur at the beginning of the asset s life the rationale behind an accelerated method of depreciation is that it appropriately matches how the underlying asset is used as an asset ages it is not used as heavily since it is slowly phased out for newer assets special considerationsusing an accelerated depreciation method has financial reporting implications because depreciation is accelerated expenses are higher in earlier periods than in later periods companies may utilize this strategy for taxation purposes as an accelerated depreciation method will result in a deferment of tax liabilities since income is lower in earlier periods alternatively public companies tend to shy away from accelerated depreciation methods as net income is reduced in the short term types of accelerated depreciation methodsthe double declining balance ddb method is an accelerated depreciation method after taking the reciprocal of the useful life of the asset and doubling it this rate is applied to the depreciable base also known as the book value for the remainder of the asset s expected life for example an asset with a useful life of five years would have a reciprocal value of 1 5 or 20 double the rate or 40 is applied to the asset s current book value for depreciation although the rate remains constant the dollar value will decrease over time because the rate is multiplied by a smaller depreciable base each period the sum of the years digits syd method also allows for accelerated depreciation to start combine all the digits of the expected life of the asset for example an asset with a five year life would have a base of the sum of the digits one through five or 1 2 3 4 5 15 in the first depreciation year 5 15 of the depreciable base would be depreciated in the second year only 4 15 of the depreciable base would be depreciated this continues until year five depreciates the remaining 1 15 of the base | |
what do accelerated depreciation methods do | accelerated depreciation methods usually align the recognized rate of an asset s depreciation with its actual use but this isn t technically required this alignment usually occurs because an asset is most heavily used when it s new functional and at its most efficient | |
what is the rationale behind accelerated depreciation methods | the rationale behind an accelerated depreciation method is that it appropriately matches how the asset is used as an asset ages it is not used as heavily it is slowly being phased out for newer assets | |
how does the accelerated depreciation method affect financial reporting | because depreciation is accelerated expenses are higher in earlier periods compared to later periods companies may utilize this strategy for taxation purposes because an accelerated depreciation method will result in deferred tax liabilities since income is lower in earlier periods | |
what are the types of accelerated depreciation methods | there are two main types the bottom lineaccelerated depreciation refers to any depreciation method used for accounting or income tax purposes that allows greater depreciation expenses in an asset s early years accelerated depreciation methods mean higher depreciation expenses in the first few years and lower expenses as the asset gets older | |
what is an acceleration clause | an acceleration clause is a contract provision that allows a lender to require a borrower to repay all of an outstanding loan if certain requirements are not met an acceleration clause outlines the reasons that the lender can demand loan repayment and the repayment required it is also known as an acceleration covenant acceleration clause explainedan acceleration clause allows the lender to require payment before the standard terms of the loan expire acceleration clauses are typically contingent on on time payments acceleration clauses are most common in mortgage loans and help to mitigate the risk of default for the lender they are usually based on payment delinquencies but they can be structured for other occurrences as well in most cases an acceleration clause will require the borrower to immediately pay the full balance owed on the loan if terms have been breached with full payment of the loan the borrower is relieved of any further interest payments and essentially pays off the loan early at the time the acceleration clause is invoked an acceleration clause is usually based on payment delinquency however the number of delinquent payments can vary some acceleration clauses may invoke immediate payoff after one payment is missed while others may allow for two or three missed payments before demanding that the loan be paid in full selling or transferring the property to another party can also potentially be a factor associated with an acceleration clause for example assume a borrower with a five year mortgage loan fails to make a payment in the third year the terms of the loan include an acceleration clause which states the borrower must repay the remaining balance if one payment is missed the borrower would immediately be contacted by the lender to pay the remaining balance in full if the borrower pays then they receive the title to the home and takes full ownership of the property if the borrower cannot pay then they are considered in breach of contract and the lender can foreclose and seize the property for resale invoking the acceleration clauseacceleration clauses are most commonly found in mortgage and real estate loans since these loans tend to be so large the clause helps protect the lender from the risk of borrower default a lender may choose to include an acceleration clause to mitigate potential losses and have greater control over the real estate property tied to a mortgage loan with an acceleration clause a lender has greater ability to foreclose on the property and take possession of the home this may be advantageous to the lender if the borrower defaults and the lender believes they can obtain value through a resale | |
what is acceptable quality level aql | the acceptable quality level aql is a measure applied to products and defined in iso 2859 1 as the quality level that is the worst tolerable the aql tells you how many defective components are considered acceptable during random sampling quality inspections it is usually expressed as a percentage or ratio of the number of defects compared to the total quantity | |
how acceptable quality level aql works | goods in a sample are tested at random and if the number of defective items is below the predetermined amount that product is said to meet the acceptable quality level aql if the acceptable quality level aql is not reached for a particular sampling of goods manufacturers will review the various parameters in the production process to determine the areas causing the defects the aql of a product can vary from industry to industry medical products for example have stringent aqls because defective products are a health risk as an example consider an aql of 1 on a production run this percentage means that no more than 1 of the batch can be defective if a production run is composed of 1 000 products only 10 products can be defective if 11 products are defective the entire batch is scrapped this figure of 11 or more defective products is known as the rejectable quality level rql the aql is an important statistic for companies seeking a six sigma level of quality control which is a quality control methodology developed in 1986 by motorola inc aql is also known as the acceptable quality limit industry differences in aql standardsthe aql of a product can vary from industry to industry for example medical products are more likely to have more stringent aql because defective products can result in health risks in contrast a product with benign side effects from a possible defect may have a less strict aql such as the remote control for a tv companies have to weigh the added cost associated with stringent testing and potentially higher spoilage due to a lower defect acceptance with the potential cost of a product recall customers would of course prefer zero defect products or services the ideal acceptable quality level however sellers and customers usually try to arrive at and set acceptable quality limits based on factors typically related to business financial and safety concerns using aql tablesaql tables also sometimes called aql charts are designed to allow users to reference a standard for what qualifies as an acceptable number of defects in manufacturing they allow a person to see how many defects would be allowed for a company to achieve a certain aql the tables are part of iso 2859 so for example let s say a company orders 30 000 hats from a clothing manufacturer that will be produced in one batch and the buyer and producer have agreed on aql 0 0 for critical defects aql 3 0 for major defects and aql 5 0 for minor defects referencing the aql tables would allow the buyer and producer to determine how many hats would need to be inspected to ensure that the agreed upon aql is being met during production instances of failure to meet customer quality requirements are termed as defects in practice there are three categories of defects acceptable quality level aql aql is typically considered to be the worst quality level that is still considered satisfactory it is the maximum percent defective that can be considered satisfactory the probability of accepting an aql lot should be high a probability of 0 95 translates to a risk of 0 05 rejectable quality level rql this is considered an unsatisfactory quality level and is sometimes known as lot tolerance percent defective ltpd the consumer s risk has been standardized in some tables as 0 1 the probability of accepting an rql lot is low indifference quality level iql this quality level is somewhere between aql and rql different companies maintain different interpretations of each defect type however buyers and sellers agree on an aql standard that is appropriate to the level of risk each party assumes these standards are used as a reference during a pre shipment inspection | |
what factors are used to determine if aql is being met | to calculate aql you need the lot or batch size the inspection type inspection level and the desired aql there are aql calculators available online if your lot or batch size is 50 000 your inspection type is general your inspection level is 2 and your aql level is 2 5 you would need a sample size of 500 units with only 21 defects anything over that has reached the rejection point | |
what does an aql of 2 5 mean | an aql of 2 5 means that only 2 5 of an order can be defective in order for it to be acceptable if more than 2 5 of the other is defective then it doesn t meet the agreement between the buyer and producer so for example if 20 000 pairs of shorts are ordered only 1 250 can be defective to reach an aql of 2 5 | |
what is the standard aql | there is no standard aql aql changes based on product and industry for example in the medical industry aql must be very low because defects in medical equipment or products can be harmful to consumers in clothing manufacturing aql might be higher however it all comes down to what the buyer and producer agree upon when making the order the bottom lineaql can be a useful figure to help ensure that large orders for manufacturing are completed to a level of standard that a buyer demands it also allows the seller to be efficient in their production while maintaining the standard set by the buyer it is generally used in large scale orders of production and is helpful in keeping both buyer and seller happy while producing good quality products | |
what does accepting risk mean | accepting risk or risk acceptance occurs when a business or individual acknowledges that the potential loss from a risk is not great enough to warrant spending money to avoid it also known as risk retention it is an aspect of risk management commonly found in the business or investment fields risk acceptance posits that infrequent and small risks ones that do not have the ability to be catastrophic or otherwise too expensive are worth accepting with the acknowledgment that any problems will be dealt with if and when they arise such a trade off is a valuable tool in the process of prioritization and budgeting accepting risk explainedmany businesses use risk management techniques to identify assess and prioritize risks for the purpose of minimizing monitoring and controlling said risks most businesses and risk management personnel will find that they have greater and more numerous risks than they can manage mitigate or avoid given the resources they are allocated as such businesses must find a balance between the potential costs of an issue resulting from a known risk and the expense involved in avoiding or otherwise dealing with it types of risks include uncertainty in financial markets project failures legal liabilities credit risk accidents natural causes and disasters and overly aggressive competition accepting risk can be seen as a form of self insurance any and all risks that are not accepted transferred or avoided are said to be retained most examples of a business accepting a risk involve risks that are relatively small but sometimes entities may accept a risk that would be so catastrophic that insuring against it is not feasible due to cost in addition any potential losses from a risk not covered by insurance or over the insured amount is an example of accepting risk some alternatives to accepting riskin addition to accepting risk there are a few ways to approach and treat risk in risk management they include | |
what is accidental death and dismemberment ad d insurance | accidental death and dismemberment ad d insurance is insurance usually added as a rider to a health or life insurance policy that covers the unintentional death or dismemberment of the insured dismemberment includes the loss or the loss of use of body parts or functions such as limbs speech eyesight and hearing because of coverage limitations prospective buyers should carefully read the terms of the policy for instance ad d insurance is limited and generally covers unlikely events also it is supplemental life insurance and is not an acceptable substitute for a full life insurance policy investopedia lara antal | |
how accidental death and dismemberment ad d insurance works | ad d insurance contains a schedule that details the terms and percentages of the various benefits and covered special circumstances for example if an insured dies from injuries sustained in an accident the death must occur within a specified period for benefits to be paid 2accidental death | |
when adding an ad d rider also known as a double indemnity rider to a life insurance policy the designated beneficiaries receive benefits from both the rider and the underlying policy if the insured dies accidentally | benefits typically cannot exceed a certain amount as detailed in the rider as most ad d insurance payments mirror the face value of the original life insurance policy the beneficiary normally receives a benefit twice the amount of the life insurance policy s face value upon the accidental death of the insured typically accidental death covers exceptional circumstances such as exposure to the elements traffic accidents homicide falls drowning and accidents involving heavy equipment ad d insurance is supplemental life insurance and not an acceptable substitute for a full life insurance policy most ad d policies pay a percentage for the loss of a limb partial or permanent paralysis or the loss of use of specific body parts such as the loss of sight hearing or speech the types and extent of injuries covered are particular to and defined by each insurer and policy voluntary accidental death and dismemberment vad d insurance is an optional financial protection plan that provides a beneficiary with cash if the policyholder is accidentally killed or loses certain body parts vad d is also a limited form of life insurance and is generally less expensive than a full life insurance policy 3premiums are based on the amount of insurance purchased 4 vad d insurance is typically purchased by workers in occupations that place them at high risk of physical injury most policies are renewed periodically with revised terms | |
how much such a policy pays depends not only on the amount of coverage purchased but also on the type of claim filed for example the policy might pay 100 if the policyholder is killed or becomes quadriplegic but only 50 for the loss of a hand or the permanent loss of hearing in one ear or sight in one eye | common exclusionseach insurance provider includes a list of exclusions in most instances the list includes suicide death from illness or natural causes and wartime injuries other common exclusions include death resulting from the overdose of toxic substances death while under the influence of nonprescription drugs suicide certain recreational activities and the injury or death of a professional athlete during a sporting event usually if the insured s loss occurs because of a felonious act on his or her part no benefit is payable people working in high risk jobs such as public safety and the military may not qualify for ad d coverage 5accidents are the fourth leading cause of death in the united states 6advantages and disadvantages of ad d insurancefinancial assistance an accidental death impacts the surviving loved ones emotionally as well as financially as they must now deal with a sudden loss of income the death benefit from an ad d policy can add peace of mind by lessening that burden supplements lost income because the loss of income will carry forward ad d policies provide funds in addition to the death benefit offered through the traditional life insurance on the insured the death benefit amount is usually equal to or some multiple of the traditional policy s death benefit amount this extra benefit may be known as double indemnity as the death benefit usually doubles with this added feature lower premiums because coverage is limited to certain events causing accidental death or loss of limb premiums are relatively inexpensive if offered through an employer it may only cost participating employees a few dollars per month even when purchased individually the costs are considerably less than rates for term insurance offering the same face amount no medical exam most insurance companies do not require a medical exam to obtain ad d coverage particularly group ad d offered through an employer only pays for certain incidents this limited coverage can be disadvantageous to policyholders because it only pays upon certain events if death occurs outside of these limitations the ad d policy does not pay premiums paid are forfeited and remain with the insurer for example if someone dies as the result of a terrorist attack no benefit is paid because that is considered a wartime act insurers have the ability to make exceptions to this as was done for victims of the 9 11 terrorist attacks in the united states low likelihood of payout the leading cause of death in the united states is heart related issues while accidents rank fourth 7 therefore it is more likely that someone will die from natural causes than from an accident especially older adults and those not engaged in risky work group coverage lost when you change jobs if coverage is group or employer sponsored it may not be portable if the insured leaves the group or employer often coverage ends upon the termination of the insured s affiliation with the sponsor leaving them unprotected until new coverage is issued false sense of security having ad d may give policyholders a false sense of security if they include the face amount in their cumulative life insurance totals during planning because ad d only pays upon certain events it should not be used to determine whether your life insurance portfolio is sufficient traditional life insurance should be adequate to provide necessary financial support to the beneficiaries ad d supplements that payout in the unlikely event that death occurs from an accident still it adds an extra benefit with the sudden and unexpected departure of the insured | |
what is ad d insurance | accidental death and dismemberment ad d insurance pays benefits in the case of a person s accidental death or dismemberment while it is usually added as a rider on a life insurance policy it can also be purchased as standalone coverage | |
what is the difference between life insurance and ad d insurance | accidental death and dismemberment ad d coverage only pays a benefit if death results from a covered accident or upon the loss or loss of use of a limb in contrast coverage is broader with life insurance life insurance policies pay benefits upon the death of the insured despite how the death occurred note exceptions apply depending on policy terms | |
what is voluntary ad d insurance | voluntary accidental death and dismemberment vad d insurance is an optional financial protection plan typically sold in the workplace that covers the same situations that regular ad d insurance does it is often purchased by workers in occupations that come with physical risk | |
does ad d cover heart attacks | although unexpected a heart attack is considered a natural cause of death and is therefore typically excluded from ad d coverage there is one exception to this exclusion if the heart attack was precipitated by the accident most ad d policies will pay the stated benefit for example if an insured with no underlying heart issues has a heart attack immediately after a catastrophic car accident and subsequently dies the policy may pay 8 | |
how much does ad d insurance cost | ad d coverage is relatively inexpensive compared to traditional term and whole life insurance costs can be as little as a few dollars per month however rates vary according to the type of ad d coverage issued and the insurer 9the bottom lineaccidental death and dismemberment ad d is a type of insurance policy that pays a benefit upon the accidental death of an insured or upon the loss of a limb due to an accident ad d is designed to supplement regular life insurance as coverage is limited to certain types of accidents no benefit is payable if the death is due to natural causes or other excludable events still ad d can be a cost effective way to supplement insurance and provide additional financial assistance to families of the deceased | |
what is an accidental death benefit | accidental death benefit is a payment due to the beneficiary of an accidental death insurance policy which is often a clause or rider connected to a life insurance policy the accidental death benefit adb life insurance policy usually pays in addition to the standard benefit payable if the insured died of natural causes depending on the policy s issuer an accidental death benefit may extend up to a year after the initial accident occurs provided that the accident led to the insured s death understanding accidental death benefitsaccidental death benefits are riders or provisions that may be added to basic life insurance policies at the request of the insured party some people add accidental death benefit riders to their policies to protect their beneficiaries if an accident occurs this is important as accidents are hard to predict and can lead to financial struggles if a sudden death occurs accidental death benefits are important for people who work in or around potentially hazardous environments even those who drive more than average either professionally or as a commuter should consider accidental death benefit riders as an optional feature the insured party must pay an additional fee on top of their regular premiums to purchase this benefit then the accidental death benefit increases the payout to a policy s beneficiary so the beneficiary essentially receives the death benefit paid by the policy itself plus any additional accidental death benefit covered by the rider these riders typically end once the insured person reaches a certain age such as 60 70 or 80 | |
what is considered accidental death | insurance companies define accidental death as an event that strictly occurs as a result of an accident deaths from car crashes slips choking drowning machinery and any other situations that can t be controlled are deemed accidental in the case of a fatal accident death usually must occur within a period specified in the policy some policies accidental death benefits may also cover dismemberment total or partial loss of limbs burns instances of paralysis and other similar cases these riders are called accidental death and dismemberment ad d insurance accidents typically exclude things like acts of war and death caused by illegal activities death from an illness is also excluded any hazardous hobbies that the insured regularly engages in race car driving bungee jumping or other risky activities are often excluded as well types of accidental death benefit planswith a group life supplement the accidental death benefit plan is included as part of a group life insurance contract such as those offered by your employer the benefit amount is usually the same as that of the group life benefit a voluntary accidental death benefit plan is offered to members of a group as a separate elective benefit offered by your employer premiums are your responsibility you generally pay these premiums through regular payroll deductions employees are covered for accidents that occur while on the job policies pay out benefits for voluntary accident insurance even if the insured party isn t at work the accidental death benefit plan with travel accident insurance is provided through an employee benefit plan and provides supplemental accident protection to workers while they are traveling on company business unlike voluntary accident insurance the employer usually pays the entire premium for this coverage some group accidental death benefit plans also provide coverage for dependents if you have a spouse or partner or children who depend on your salary to pay bills and other costs it may be a good idea to enroll in an accidental death benefit this additional insurance could help them out by providing money to pay bills pay off a mortgage or provide money to your children for future events like college in addition if you co own a business your business partner could be listed on your insurance policy to cover any outstanding debts in the event of your death example of accidental death benefitas a hypothetical example assume you have a 500 000 life insurance policy with a 1 million accidental death benefit rider if you die due to a heart attack a natural cause the insurance company will pay your beneficiary 500 000 if you die as a result of a car accident your beneficiary will receive the 500 000 life insurance benefit plus the 1 million accidental death benefit for a total payout of 1 5 million | |
what is considered accidental death for insurance purposes | insurance companies consider accidental death to be an event that causes your death as the result of an accident for example most car crashes falls down the stairs machinery choking and even drowning are circumstances beyond your control and thus counted as accidental | |
what is accidental death and dismemberment insurance | accidental death and dismemberment insurance covers you in the case of accidental death or if you lose a limb or other significant injuries in an accident that causes you to stop working besides being dismembered the insurance may include workplace injuries injuries caused by a fire or flood accidents with firearms or a serious fall | |
are accidental death and dismemberment ad d insurance and accidental death benefit adb the same thing | accidental death and dismemberment ad d and accidental death benefit adb policies both pay a benefit the main difference is that an ad d policy will pay if the insured is dismembered or injured whereas the adb only pays a benefit if the insured dies the bottom lineaccidental death benefits are paid to beneficiaries of an accidental death insurance policy insurance companies often have strict perimeters of what constitutes an accidental death accidental death benefits are optional riders so they aren t included in standard life insurance policies these riders often end at a specific age which is set by the insurance company if you work in a dangerous environment you may want to consider adding an accidental death benefit rider to your insurance policy | |
what is an account balance | an account balance is the amount of money in a financial repository such as a savings or checking account the account balance factors all debits and credits an account balance is also evident on billing statements for credit cards utilities and loans calculating account balancesan account balance reflects total assets minus total liabilities in banking the account balance is the money available in a checking or savings account the account balance is the net amount available after all deposits and credits have been balanced with any charges or debits for investments in brokerage accounts an account balance can change daily as security prices rise and fall in the market other accounts have an account balance such as a utility bill or a mortgage loan the account balance for these accounts shows the amount owed a bank account balance can be inaccurate if a check has yet to clear the bank or a pending transaction has not yet gone through examples of account balancesfor a credit card various purchases may include 100 50 and 25 and a returned item that costs 10 the account balance includes the purchases which total 175 and the item returned for 10 the net of the debits and credits is 165 or 175 minus 10 which is the account balance for a checking account if the starting balance is 500 and a check is received for 1 500 but an automatic payment is scheduled for 750 the account balance might show 2 000 immediately but the account balance is 1 250 account balance vs available creditfor credit cards account balances represent the total amount of debt owed at the start of the statement date and include any debt rolled over from previous months with interest charges available credit is the term used alongside the account balance to indicate how much of the credit line is left to spend | |
how can individuals check a bank account balance | account holders can check balances by signing in to their bank s app or website and looking at their latest transactions or by visiting the local branch and speaking with a representative | |
what kinds of accounts have account balances | checking savings and brokerage accounts all have account balances however expenses like utility bills mortgage loans or credit cards also have account balances | |
what s available credit | available credit refers to the amount remaining on the credit line the available credit can be determined by subtracting the account balance from the credit limit the bottom linean account balance represents the available funds in a financial account such as a checking savings or investment account an account balance in a brokerage account can change daily as security prices rise and fall in the market a bank account balance can be inaccurate if pending transactions exist | |
what is an account in trust | an account in trust or trust account refers to any type of financial account that is opened by an individual and managed by a designated trustee for the benefit of a third party per agreed upon terms for example a parent can open a bank account for the benefit of their minor child and stipulate rules as to when the minor can access the funds or assets in the account as well as any income they generate in most cases the trustee who manages the funds and assets in the account acts as a fiduciary meaning the trustee has a legal responsibility to manage the account prudently and manage assets in the best interests of the beneficiary | |
how an account in trust works | accounts in trust can hold different assets including cash stocks bonds mutual funds real estate and other property and investments 1 trustees can vary as well they can be the person opening the account someone else they designate as a trustee or a financial institution such as a bank or brokerage firm trustees have the option to make certain changes to the account in trust these can include naming a successor trustee or another beneficiary a trustee may even close the account in trust or open a subsidiary account to which they can transfer some or all of the assets in the account in trust however the trustee is obligated to follow the instructions of the document that established the account in trust types of accounts in trustthe specifics of accounts in trust can vary depending on the type of account terms outlined in any trust agreements as well as applicable state and federal laws one example of an account in trust is a uniform gifts to minors act ugma account this type of account in trust created allows minors to legally own the assets held in these accounts however they can t have access to the account s principal and income until they reach legal age this type of account in trust is typically opened by parents to fund their children s higher education expenses and to secure certain tax protections 1a uniform transfers to minors act utma account differs from a ugma account in that it allows for the donation of non basic assets such as life insurance and stocks 1ugma accounts are managed by a custodian who is appointed by the donor the custodian must manage the account for the benefit of the minor 1 they can invest the funds withdraw money within limits for the minor s care and needs also contributions can be made to the account with no limits another type of account in trust is a payable on death pod trust also called a totten trust these accounts are essentially bank accounts with named beneficiaries who can legally take possession of the trust s assets and income upon the death of the individual who opened the account pod trusts are protected by the federal deposit insurance corporation fdic as are traditional bank accounts 2 in addition this type of account does not need to clear probate for assets to transfer to the rightful beneficiary upon the death of the initial owner 3there are events however that prevent the named beneficiary from obtaining the full value of the account upon the death of the account owner in community property states the spouse of the decedent may be entitled to half of the account although the spouse is not entitled to funds accumulated before marriage also the beneficiary does not receive a benefit from a jointly owned account if the joint owner is still living the benefit is payable upon the death of the last surviving owner in the housing world an account in trust is a type of account usually opened by a mortgage lender the lender uses this account to pay property taxes and insurance on a homeowner s behalf this type of account in trust is also called an escrow account and funds to be deposited into it are usually included in the monthly mortgage payment the two main types of escrow accounts are the purchase escrow account and refinance escrow account a purchase escrow account holds funds related to the purchase of a home and is managed by an escrow agent earnest money presented by the buyer to the seller and other real estate transaction fees such as loan fees agent commissions and appraisal fees are held in a purchase escrow account a refinance escrow account much like a purchase escrow account holds fees related to the transaction which in this case is the refinance of a home such fees include appraisal and attorney fees 4 | |
how to set up an account in trust | before setting up the account in trust review your available options and choose the one that best suits your needs there are several details to consider beforehand however for example identify who you want to manage the trust and how you want it managed during your life and upon death considering death identify who you want as your beneficiary or beneficiaries and how you want them to receive the assets determine what assets the trust will hold and under what condition they can be disbursed or disposed of once the details are confirmed complete and file the appropriate paperwork according to the rules of your state it might be best to consult an attorney to ensure that the account in trust is established according to your preferences benefits of an account in trustaccounts in trust are preferred by many because they avoid probate enabling a quicker and easier distribution of assets these accounts also may provide favorable tax benefits such as the irs considering income as trust income for irrevocable trusts which usually results in a lower tax liability 5accounts in trust allow the wishes of the donor to be carried out during their lifetime and or upon death they can specify how they want their assets managed how and when they will be dispersed and who will manage them example of an account in trustmr and mrs q sample are school teachers with a goal to retire in 15 years they have three adult children and 2 infant grandchildren hoping to secure their assets and create college funds for their grandchildren they explore accounts in trust as options after meeting with an attorney they decided to protect their assets in a revocable trust whereby they serve as co trustees and their eldest child as a successor trustee their assets including real estate stocks and other investments will be managed in the trust upon death all assets will be distributed equally among their children who are named as the beneficiaries 6they also established education trust accounts for each grandchild initially depositing 5 000 into each account their goal is to invest 2 000 per account each year until the grandchildren reach the age of majority the funds can only be used for educational purposes however if the grandchild does not attend college or trade school the funds will be dispersed in monthly installments beginning at age 25 account in trust faqsif you have assets and specific preferences in how and to whom they are distributed a trust account might be beneficial speak with an expert such as an estate planner advisor or attorney to explore what trust accounts are available and which ones are advantageous for you after deciding which trust account to establish outline the conditions you want to be specified within the trust draft the trust document according to the rules for your state be sure to name the parties trustees to manage the trust as well as the beneficiaries then create an account for and transfer assets into the trust this can be done with most banks and financial institutions before establishing a trust it might be helpful to seek advice and guidance from a professional a revocable trust is a trust in which the terms can be modified or revoked by the grantor in contrast an irrevocable trust is a trust in which the terms cannot be modified or revoked without the written consent of the beneficiaries 7the terms will and trust are often used interchangeably but they are quite different a will is a legal document outlining the final wishes of a person upon their death it is only effective after its originator dies trusts are effective upon their creation trusts can outline how assets are to be treated during the life of the grantor and upon death whereas an executor or executrix is appointed to ensure that a will is executed according to its specifications a trustee is appointed to ensure that the conditions of the trust are met unlike wills trusts are not subject to probate and cannot be contested 87 | |
what is a bank account number | a bank account number is a unique string of numbers and sometimes letters and other characters that identify a particular bank account and grant access to it this often is one of the most important account numbers people have for transacting business | |
how a bank account number works | a bank checking account s number is located at the bottom of the paper check you ll see three sets of numbers in a computer readable font at the bottom of the check payroll processing offices use checking account numbers to set up direct deposit payments for employees protecting bank account numbersbank account numbers are vulnerable to identity theft and fraud this is why you have to answer questions about your mother s maiden name when you try to make routine changes to an account like your bank account the means of making it difficult for hackers to steal account numbers have in recent years taken the form of password managers along with multi factor authentication or mfa systems businesses now often employ a hard to hack master password to unlock an electronic vault of customers bank account numbers and other sensitive data consumers are becoming accustomed to multifactor authentication which adds another step before granting access to a bank account such as requiring a fingerprint voice activation or a time sensitive code sent to the cellphone number on record 2these are just some of the means of protecting users bank account numbers in an increasingly vulnerable online environment the traditional check layout applies to most personal checks but some business checks and bank printed checks have other formats account number vs routing numberon a paper check the nine digit routing number identifies specific financial institutions within the u s the number identifies the check as having been issued by a federal or state chartered bank that maintains an account with the federal reserve 1this system dates back to 1910 and was developed initially as a way to help bank clerks sort through piles of checks and assign them to the correct drawer 3 today electronic services use them in much the same way for wire transfers to draw a payment from a deposit at the correct institution the individual s bank account number works together with the routing number to identify the right account holder at the right institution | |
how to locate your bank account number | you can find your bank account number on your monthly bank statement or by visiting a branch of your bank if you are using a checking account the account number is also printed on your paper checks you can find it printed between the bank s routing number and the check number as shown below | |
how do you find the account number on a check | you can find your bank account number printed at the bottom of your paper check this is the second sequence of numbers printed between the nine digit routing number and the shorter check number this number can also be found on your account statement 1 | |
how long is a bank account number | a bank account number is usually eight to 12 digits long but some account numbers have up to 17 digits note that this is not the same as your debit card number or credit card number 4 | |
how do you find out your account number | you can find your bank account number on your bank statements printed at the bottom of a paper check or by logging on to the bank s website if you can t find it in these ways try visiting a bank branch in person the bottom linea bank account number is a unique identifier for each account at a bank or other financial institution that you have along with the routing number the bank uses this number to make payments and accept deposits due to the increase in identity theft and fraud it is important to actively protect your bank account number and other banking information | |
what is an account statement | an account statement is a periodic summary of account activity with a beginning date and an ending date the most commonly known are checking account statements usually provided monthly and brokerage account statements which are provided monthly or quarterly monthly credit card bills are also considered account statements understanding account statementsaccount statements refer to almost any official summary of an account wherever the account is held insurance companies may provide account statements summarizing paid in cash values for example statements can be generated for almost any type of accounts that represent ongoing transactions where funds are repeatedly exchanged this can include online payment accounts such as paypal credit card accounts brokerage accounts and savings accounts utility companies as well as telephone and subscription television service providers usually generate account statements for their customers detailing their usage and any overages during the payment cycle such statements typically list debits paid incoming funds or credits received by the account holder and fees associated with maintaining the account for example certain types of savings accounts might incur regular maintenance fees unless a certain minimum balance of funds is maintained in the account cable television subscriptions may include state taxes and other surcharges that are included in providing regular service account statements don t necessarily need to be financial consider an account statement that tracks a company s environmental impact from one period to the next elements of account statementsthough account statements may vary based on the issuer and underlying service you may come across the same elements across statements these elements may include but aren t limited to | |
how account statements are used | account statements should be scrutinized for accuracy and historical statements are critical for budgeting a credit or loan account statement for example may show not only the outstanding balance due but the interest rate charged on that debt and any fees that have been added during the payment cycle this can include late charges for payments not received by their due date as well as overdraft fees when bank account holders overspend your account statements are a window into your finances the statement may also list financial information that relates to the account holder such as their credit score or the estimated time it will take to completely pay off a debt via installment payments alerts and notices to the account holder may also appear on these statements calling attention to matters with the account that need to be addressed such unusual charges that should be reviewed and verified account statements are often recurring and should arrive at a set cadence contact your account administrator to best understand when statement periods occur and when you may expect statements red flags on account statementsanomalous items on an account statement may be a sign the account has been compromised perhaps through a stolen credit or debit card or through identity thieves who gained access to account information for example an account holder or the financial institution might spot a charge for concert tickets or a luxury item that seems out of the ordinary account holders may be able to dispute such out of place charges and file a claim that they did not make the purchase themselves reviewing your account statements as they come in is a good financial habit that can catch these red flags before they become a financial disaster electronic statements vs paper statementsaccount statements may be delivered electronically or via paper electronic account statements are delivered digitally in formats like pdf html or through online portals they offer convenience reduce impacts to the environmental and can often be easily stored the primary aim of electronic statements is to reduce paper usage save space and reduce the risk of unauthorized access compared to paper statements electronic statements may be password protected and delivered through secure channels reducing the risk of theft or interception electronic statements may also be more easily shared by other individuals needed copiespaper account statements are printed on paper and sent via postal mail to the account holder s physical address proper disposal of paper statements is crucial to protect sensitive information and prevent unauthorized access to personal financial information paper statements do not require an internet connection or electronic device to access this can be beneficial for individuals in areas with limited connectivity or those who prefer to review their financial information offline in case of technical issues or loss of access to electronic records both temporarily or permanently individuals can rely on their paper statements as a secondary source of information | |
what should i do if i notice an error or discrepancy on my account statement | if you notice an error or discrepancy on your account statement contact your bank immediately provide them with the details of the incorrect transaction and they will initiate an investigation to rectify the issue and ensure your account is accurate | |
how long should i keep my account statements | the recommended duration for keeping account statements varies but it s generally advised to retain them for a minimum of one to three years however consult with a financial advisor if you re unsure what account information should be retained especially related to tax statements investment statements or banking statements | |
are there any fees associated with receiving paper account statements | some financial institutions may charge fees for providing paper account statements electronic statements are often offered as a free alternative or may have lower associated costs check with your bank for their specific fee structure and any incentives for switching to electronic statements | |
how can i use my account statements for budgeting and financial planning | account statements can be used for budgeting and financial planning by analyzing income expenses and patterns of spending review your statements to track where your money goes identify areas for potential savings and make informed decisions about budget adjustments or financial goals the bottom lineaccount statements provide a comprehensive overview of transactions balances and activities in a bank financial or other account they include details such as deposits withdrawals interest earned fees charged and the current balance if applicable account holders can access statements electronically or in paper format and they play a crucial role in tracking finances reconciling records identifying errors and aiding in budgeting and financial planning | |
what is accountability | the term accountability refers to the acceptance of responsibility for honest and ethical conduct toward others in the corporate world a company s accountability extends to its shareholders employees and the wider community in which it operates in a wider sense accountability implies a willingness to be judged on performance understanding accountabilityaccountability is an essential concept in corporate finance it is defined as an entity s actions to take responsibility for their actions this can range from accounting for financial discrepancies conduct toward employees financial mismanagement or losing shareholder confidence this concept is particularly relevant to the accounting practices that a company adopts when it prepares the financial reports submitted to shareholders and the government without checks balances and consequences for wrongdoing a company cannot retain the confidence of its customers regulators or the markets corporate accountability has come to encompass a company s activities as they affect the community a company s environmental impact investment decisions and treatment of its own employees all have come under public scrutiny each industry has its own standards and rules for accountability that may evolve over time for example the rules for social media accountability are being written now types of accountabilitythe concept of accountability runs throughout all industries sectors companies and professions here is an overview of where accountability is most prevalent in the business sector at its most prosaic accountability is about numbers every public company must publish a financial report quarterly and annually detailing its income and expenses 1 an independent auditor reviewing a company s financial statements is responsible for obtaining reasonable assurance that the financial statements are free from any material misstatements caused by error or fraud 2 this auditor is holding the company accountable for its reporting accountability requires corporate accountants to be careful and knowledgeable as they can be held legally liable for negligence an accountant is responsible for the integrity and accuracy of the company s financial statements even if an error or misstatement was made by others in the organization this is why independent outside accountants audit the financial statements public companies are required to have an audit committee within the board of directors their job is to oversee the audit 3political accountability can relate to political contributions and how candidates use resources for example the nonpartisan center for political accountability and the wharton school at the university of pennsylvania publish a joint annual index rating major public corporations disclosure and oversight policies regarding their donations to political causes and candidates 4these scandals resulted in tougher regulations and there are armies of regulators and private watchdogs working to make sure that companies report their earnings correctly that the exchanges execute trades in a timely fashion and that information provided to investors is timely and accurate the center for political accountability shines a spotlight on corporate spending that aims to influence politicians in 2021 kff health news reported in depth on a campaign by the pharmaceutical industry to head off a proposal to allow medicare to negotiate drug prices with vendors the report named the names of members of congress who accepted political donations from drugmakers 5 by 2023 the center for political accountability noted that 218 large public companies had adopted political disclosure policies 6accountability is subjective for instance merck was named the most responsible company in 2024 7 however according to newsweek hp was the highest rate company in regards to responsibility in 2023 8 meanwhile mckinstry was the top rated in terms of a corporate equality index 9 there s a spectrum of accountability that companies land on and where they land can constantly change the role of corporate cash is only one of the global issues regarding government accountability for instance the u s agency for international development usaid the federal agency that administers civilian foreign aid measures government accountability by the following key factors to aid in protecting citizens the government accountability project protects federal state and local whistleblowers who spot problems and report them to appropriate agencies 11 in this model governments are held accountable through unofficial internal audits anyone can report anyone else for improper behavior forcing accountability to be systematic and prevalent throughout organizations the media in the u s is uniquely protected by the first amendment from interference by congress however this does not mean that it is free from accountability the media has long been under the constant scrutiny of a number of watchdogs internal and external in the internet era these have been augmented by independent fact checking organizations such as factcheck org snopes and politifact these and other organizations monitor the media for bias and errors and publish their findings for all to see individuals can now easily contribute to the conversation thanks to social media there is a debate though whether platforms like facebook are publishers or if the users are the publishers in either case social media continues to be under fire for spreading dangerous misinformation providing a platform for hate speech and having a generally lacking sense of accountability accountability in the workplacefor companies to be successful employees must conduct themselves with accountability this is done in several ways let s first consider the soft skills of accountability this includes showing up to work when expected and showing up to work prepared for the tasks for the day accountability extends to every department and every employee as it starts with being present honest and engaged in everyday tasks outside of one s job there is also a deep rooted sense of accountability in specific positions professionals who handle physical or digital money have a standard of accountability to be honest and responsible with funds that do not belong to them personally managers have a duty of accountability to properly oversee employees treat them well and guide them through growth opportunities there are a few ways that a company builds manages and sustains accountable practices such as internal accountability vs external accountabilityinternal accountability refers to the practices within a company this type of accountability is maintained through internal controls performance evaluations audits and a strong corporate culture for example regular performance reviews and audits help identify areas where employees and departments may need improvement external accountability on the other hand pertains to a company s obligations and responsibilities to outside parties such as regulators investors customers and the general public this form of accountability is often enforced through legal requirements industry standards and public scrutiny companies must regularly disclose financial information comply with environmental regulations and meet consumer protection laws if they don t there may be legal consequences that are detrimental to the company s ability to function both forms of accountability must be present for a company s success and sustainability however there are different risks to each internal accountability ensures that the organization operates efficiently and ethically from within should this not happen it may be much more difficult to achieve external accountability note that external accountability whether by regulators or consumers is the more detrimental and costly of the two but it doesn t happen on its own in some cases a failure to uphold internal accountability leads to problems with external accountability benefits of accountabilityaccountability is different at every company however there are overarching benefits that accountability can provide should a business be able to appropriately execute accountability practices a 2022 research study by pew research found that 51 found that the so called cancel culture was a movement to hold people accountable for their actions while 45 saw the movement as punishment for people who didn t deserve it 12 studies like this demonstrate how accountability can be a blurred line example of accountabilitycorporate accountability can be hard to quantify but that doesn t stop anyone from trying one real world example of corporate accountability is the volkswagen emissions scandal often referred to as dieselgate 13 this scandal exposed how volkswagen one of the world s largest automobile manufacturers had deliberately installed software in its diesel vehicles to cheat on emissions tests in 2015 the united states environmental protection agency epa found that many vw cars being sold in america had a defeat device in diesel engines that could detect when they were being tested in reality cars emit up to 40 times the allowed levels of nitrogen oxides pollutants that contribute to the formation of smog and acid rain and are linked to various respiratory diseases the ultimate fallout was volkswagen faced hefty fines and settlements the company agreed to spend up to 25 billion in the united states alone to address claims from regulators car owners and dealers this included buying back affected vehicles funding environmental programs and compensating owners several executives were charged and in 2017 volkswagen pleaded guilty to criminal charges and agreed to pay 4 3 billion in penalties the scandal led to significant changes in volkswagen s leadership ceo martin winterkorn resigned and other top executives were either suspended or left the company vw undertook various internal reforms to improve compliance and transparency they implemented stricter environmental standards and compliance measures to prevent future misconduct volkswagen also issued public apologies acknowledging their misconduct and committing to making amends | |
what does accountability mean | accountability is the practice of being held to a certain standard of excellence it is the idea that an individual is responsible for their actions and if that individual chooses unfavorable actions they will face consequences accountability strives to promote a high level of work promote honesty encourage dependability and garner trust from members around you | |
what is an example of accountability | a company can foster a sense of accountability by setting expectations with employees delegating tasks to different members of a team and explaining the consequences if the tasks are completed incorrectly or late another example of accountability is a financial advisor managing a client s funds the advisor must not only be held to a standard of fiduciary duty they must realize that there are consequences for their actions and that what they choose to do today with their client s money will have downstream effects either positive or negative | |
how is accountability defined in the workplace | to management coaches accountability in the workplace goes beyond giving each employee a task to complete in a project it also means making each individual accountable for the success or failure of their contribution to the overall project 14 in other words it s all about the ownership of success or failure |
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