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what is a guaranteed investment contract gic | a guaranteed investment contract gic is a contract between an insurance company and an investor typically a pension fund or an employer sponsored retirement plan such as a 401 k the investor agrees to deposit a sum of money with the insurer for a specified period of time and the insurer promises to pay the investor an agreed upon interest rate as well as to return the principal employees who participate in a 401 k or similar plan often have gics as one of their investment choices gics are sometimes called funding agreements | |
how guaranteed investment contracts gics work | a gic works a bit like a certificate of deposit cd from a bank although gics are typically purchased by institutions rather than individuals and often come in much higher denominations like cds gics are considered a relatively low risk investment they also provide a lower rate of return than many other investments in retirement plans gics typically appeal to risk averse investors or those who want to balance out their portfolios by putting some of their money into a low risk account gics are often offered to retirement plan participants as part of a stable value fund or similarly named conservative investment option most gics have either a fixed interest rate or a variable interest rate that adjusts periodically based on a particular index | |
what does guaranteed mean with a gic | the word guaranteed in the term guaranteed investment contract comes with a caveat while the insurance company guarantees that it will pay the agreed upon interest rate and return the investor s principal that guarantee is only as solid as the insurer itself | |
when the federal government bailed out the huge insurance company aig during the 2007 2008 financial crisis it said one reason was to keep aig from defaulting on its gics | as officials of the federal reserve bank of new york later testified pension plans that had placed funds in aig guaranteed investment contracts or gics which function much like deposits in a bank would have experienced significant losses losses that would be passed along to retirees or to others whose aspirations to be retirees would surely have been changed 1since gics pay relatively low rates of interest it can be easy for inflation to outstrip their performance gic investors face interest rate risk and inflation is also an issue for example if a gic pays 4 annual interest over its 10 year term but inflation averages 6 during that same period the purchaser will lose money in terms of purchasing power | |
what is a synthetic guaranteed investment contract gic | the u s office of the comptroller of the currency defines a synthetic guaranteed investment contract gic as a diversified portfolio of fixed income securities that are insulated from interest rate volatility by contracts wraps from banks and insurance companies in this arrangement the 401 k plan and its participants own the underlying invested assets the portfolio of fixed income securities that supports the stable value fund with a regular gic by contrast the insurance company owns the underlying assets as part of its general account 2 | |
what is a guaranteed investment certificate | not to be confused with a guaranteed investment contract with which it shares the acronym gic a guaranteed investment certificate is a financial product in canada guaranteed investment certificates are sold by canadian banks credit unions and trust companies often to individuals for their retirement accounts the canadian gic is more like a u s cd than a u s gic | |
are guaranteed investment contracts federally insured | no there is no federal insurance for guaranteed investment contracts unlike certificates of deposit cds many of which are covered by either the federal deposit insurance corp fdic or the national credit union administration ncua some insurance products are covered by state insurance guaranty associations however many of those associations do not extend their coverage to include gics 3the bottom lineguaranteed investment contracts gics are contracts between an insurance company and an investor typically a pension fund or an employer sponsored retirement plan such as a 401 k employees who participate in a 401 k or similar plan often have gics as one of their investment choices sometimes as part of a stable value fund because of their low interest rates gics are especially susceptible to the risk of inflation | |
what is guaranteed investment income gif | guaranteed investment income is a type of investment product offered by insurance companies that allow clients to invest in equity bond and or index fund while providing a promise of a predefined minimum value of the fund usually the initial investment amount will be available at the fund s maturity or when the client dies insurance companies typically charge up to 1 of the investment amount per year for this service | |
how guaranteed investment fund gif works | some guaranteed investment income funds also allow people to reset the guaranteed amount during specific periods of time this allows investors to lock in greater sums if they incur a large capital gain for example suppose an investor near retirement age had invested 500 000 into this fund and after an incredible bull run their investment grows to 585 000 in a year by resetting the guarantee at this point the investor has now guaranteed that they will at the very least receive 585 000 concepts of guaranteed investment fundsguaranteed investment funds as their name shows guarantee that all or part of the invested capital will be secure for a specific date in the future and in some cases there is the possibility of almost guaranteed returns a date in the future when all of the fund s shares are guaranteed to reach a specific net asset value guaranteed net asset value only those shareholders that leave their investment until the maturity date will be entitled to the guarantee if a redemption is made before that date then there could be great losses an entity that commits to providing the funds required to ensure the investor keeps their initial investment if the guaranteed investment fund does not perform in a way that generates net asset value when this amount is delivered directly to the fund then there is an internal guarantee if the shareholder receives the amount then the guarantee is external a marketing period is a period during which shares can be purchased from a guaranteed fund without paying subscription fees these do more than ensure that starting capital is secure for the guarantee s maturity date they also ensure set and predetermined returns as stated in the brochure in terms of annual interest apr this means that some guaranteed funds set predetermined dates when the shareholder can receive a total or partial redemption without paying redemption fees to do this you must respect the notice periods stated in the brochure given that these redemptions are done according to the net asset value on that day the guarantee is not applicable and losses may be incurred these only ensure starting investments on the guarantee s maturity date they also offer the option to gain returns linked to how multiple financial assets or indicators perform according to complex calculation formulas investors must take into account that if underlying instruments do not develop as expected then it is possible not to gain any returns | |
what is guaranteed issue life insurance | guaranteed issue life insurance or guaranteed acceptance life insurance is a type of whole life insurance policy that does not require you to answer health questions undergo a medical exam or allow an insurance company to review your medical and prescription records you may also see it referred to as no questions life insurance or no questions final expense insurance 1sounds great right here s the catch guaranteed issue life insurance always has a waiting period if you die during the waiting period your beneficiaries will not receive the policy s death benefit with most policies the waiting period is two years with some it s three 1this is not some kind of scam in fact if you die during the waiting period the insurance company will repay to your beneficiaries all your insurance premiums plus interest usually at a rate of 10 1your beneficiaries will still get something it will just be less than you d like insurance companies put this waiting period in place because if they didn t everyone could apply for insurance on their deathbed and pay a few hundred dollars to secure a 25 000 benefit for their family no insurance company could stay in business this way guaranteed issue life insurance provides coverage to sick people who otherwise couldn t get it | |
how guaranteed issue life insurance works | these policies get their name because the insurance company guarantees they will issue a policy to you as long as you are within the allowed age range when you apply in other words they are guaranteeing that they will accept you as a policyholder the typical age range to qualify is 50 to 80 years old if you are outside of this age range you may still be able to get a guaranteed issue policy with some insurance companies but you will have fewer options 1given these age requirements and the lack of medical underwriting health questions you can see why insurance companies market guaranteed issue policies to this age group 2 yet many people in this age group even those with health problems have options besides guaranteed issue life insurance this type of insurance is best for people who have no other options because of their health or who can t afford any other options because of their health 1 | |
which conditions will disqualify you from any other type of health insurance not as many as you might think | if you ve ever had an elderly parent or grandparent you probably know what a person with one or multiple conditions such as these looks like they have good days and bad days sometimes you think they are on the brink of death but then they suddenly turn around and seem better than ever their physical health mental health and physical abilities can seem really unstable for most insurance companies this level of instability represents too much risk but some specialize in taking it on you might have heard about guaranteed issue life insurance from a 2018 television commercial one from insurer colonial penn has jeopardy host alex trebek advertising the company s guaranteed issue life insurance who doesn t love and trust trebek he was a national treasure like mr rogers or vin scully having him pitch insurance was a great idea all the information in the commercial is accurate though most applicants will probably not be paying the teaser rate of 9 95 a month for their policy still it s true that insurers cannot deny you coverage increase your premiums or reduce your death benefit as long as you pay the premiums these are all standard features of a whole life insurance policy and guaranteed issue is a type of whole life insurance alternatives to guaranteed issuelife insurance premiums always depend on your age height weight health gender in states that allow gender based pricing the death benefit and the policy type insurance companies do not have different underwriting guidelines for different types of insurance says rick sabo a financial planner and insurance fraud expert in gibsonia pa whether you re buying term whole or universal the insurance company will put you in the same risk category however a different insurance company might put you in a different risk category in other words if you have a serious health condition such as diabetes one company might offer you a better policy than another many applicants and applicants with health issues believe they could never qualify for a policy that requires medical underwriting but that often isn t the case it depends on the health condition and the issuer people can get life insurance with underwriting even if they have congestive heart failure have had a heart attack in the last 12 months or have had a stroke in the last 12 months among other health conditions 1for most people it s worth applying for several policies that ask health questions to see if they can get a better rate more coverage and immediate coverage those who only want a small policy should look into guaranteed universal life which can provide coverage to age 100 or even 121 or final expense insurance guaranteed issue policies are useful but only to applicants who don t qualify for policies with medical underwriting 3guaranteed issue what s the catch except for the waiting period guaranteed issue policies might sound too good to be true unhealthy people take out policies pay their premiums and die in a few months or a few years the insurance company has to either return their money or pay a death benefit how can insurers even afford to offer these policies the way life insurance companies make a bulk of their profit is not via the collection of premiums minus death benefits says life insurance broker anthony martin the ceo of choice mutual they make most of their money via investments life insurance premiums are basically like interest free loans to the insurance company says martin the company invests that money in 2021 life insurance companies brought in 159 5 billion in premiums and 200 8 billion in net investment income according to the insurance information institute a nonprofit communications organization supported by the insurance industry 4 insurance companies invest in stocks mortgages real estate derivatives and other assets for guaranteed issue they do lose money on clients who die in the first two years says martin it takes five years for the insurance company to break even on this type of insurance and it s a win win for the insured in most cases the only time the insured would not come out ahead would be if they live long enough where their premiums exceed the policy he continues another reason insurance companies can afford to offer what seems like a no lose proposition for the policyholder is because many people let their policies lapse this means they pay premiums for a few years then stop and lose their coverage if they have any type of whole life insurance they will receive their policy s cash surrender value but that sum will be much less than the premiums they paid in or the death benefit their heirs would have received life insurance companies paid out 362 7 billion on surrendered policies in 2021 4 | |
when guaranteed issue falls short | there are two scenarios in which a guaranteed issue policy might not pay off or be the best option these are if the insured lives long enough that the premiums paid exceed the death benefit or if the insured buys a guaranteed issue policy when they could have qualified for a policy that has medical underwriting policies with medical underwriting have lower premiums for the death benefit they provide they also offer immediate death benefits or a graded death benefit instead of having a waiting period the bottom linedespite these factors guaranteed issue can be a valuable financial asset for people who can t otherwise get insurance and those people aren t always seniors they may be younger or middle aged adults in poor health who want to leave money for their families no two guaranteed issue life insurance policies are the same so as with other insurance policies you should shop around for the one that best fits your needs that way you re more likely to find the best life insurance policies currently on the market look for affordable rates something you know you ll be able to keep up with even if your financial situation changes because a lapsed policy won t help anyone except the insurance company most importantly don t assume you can t qualify for a policy that has a health questionnaire you won t know until you apply | |
what is a guaranteed lifetime withdrawal benefit glwb | a guaranteed lifetime withdrawal benefit glwb is a rider to a variable annuity that provides a minimum payout level even if market losses reduce the cash value of your contract most of these riders also allow you to make withdrawals from your cash value as needed you typically pay for the glwb rider with annual fees that can vary based on the issuer understanding guaranteed lifetime withdrawal benefits glwbs an annuity is a contract between the purchaser called the annuitant and the issuer in which the annuitant makes a one time payment or regular payments to the issuer in exchange the issuer makes periodic payments back to the annuitant for the remainder of their life or for a specific number of years if you buy a fixed annuity the issuer pays a fixed interest rate on the money you ve paid to it however with a variable annuity you can invest in the market through subaccounts this feature offers greater growth potential but also subjects you to potential losses a glwb is a way to mitigate that risk the glwb rider ensures that you receive a minimum lifetime payment that essentially counteracts any losses in your subaccounts most issuers also allow you to make additional withdrawals from your cash value however these typically reduce the guaranteed withdrawal amount | |
how glwb riders work | variable annuities have a cash value that s equal to the premiums you have paid plus or minus any market returns with a glwb rider however the contract has a separate benefit base sometimes called a withdrawal base that is used to calculate lifetime withdrawals once you elect to receive your income stream this benefit base is used to determine the amount of your minimum guaranteed withdrawal depending on the terms of the contract and your age a certain percentage is applied to the benefit base to determine your guaranteed annual payment it is usually determined by your age at the start of annuitization here s an example if you are 65 when you make your first withdrawal your contract might stipulate a 5 withdrawal rate whereas if you start receiving payouts at 70 your stipulated rate might be higher say 5 25 a key feature of glwb riders is that your withdrawal amount is based on either the benefit base or the cash value whichever is higher when you start receiving guaranteed payments 1 for example say you invested 50 000 in premiums and have a withdrawal rate of 5 but your cash value is only 35 000 when you elect to annuitize due to poor market performance the issuer would take the higher of these two amounts your benefit base of 50 000 to calculate the guaranteed minimum withdrawals this means you would receive 2 500 per year 50 000 0 05 withdrawal rate glwb riders may also allow you to make additional withdrawals from your cash value even during the annuitization phase however doing so usually results in a reduction of your benefit base 1for example a withdrawal of 20 of your cash value would lead to a 20 decrease in the guaranteed minimum payments for the remainder of your life in the example above such a withdrawal would decrease the glwb payment to 2 000 40 000 0 05 withdrawal rate most insurance companies charge an annual fee for taking on the market risk that would ordinarily be borne by the customer those costs can vary widely making it important to carefully review annuity documents before purchasing one potential glwb featuressome glwb riders come with additional benefits that can potentially increase the amount of your guaranteed withdrawal the issuer may charge an additional fee or roll it into the fee for the rider itself among the more common examples are the insurer may offer a minimum rate of return to your benefit base the withdrawal amount is based on the higher of your benefit base plus minimum return or the cash value 1suppose for example that you paid 50 000 in premiums but had a guaranteed 4 rate of return regardless of market conditions in two years that base would go up to 54 080 add 2 000 after the first year then 2 080 after the second year if the cash value remained at 50 000 the issuer would use the benefit base to calculate the lifetime payments assuming a 5 withdrawal percentage you would receive annual payouts of 2 704 54 080 0 05 withdrawal rate if the rider has a step up feature the insurer will periodically compare the current cash value in the account with the amount initially used to determine the glwb if the cash balance is higher it will adjust the benefit accordingly 1suppose for instance that the original withdrawal amount was based on a benefit base of 50 000 with a 5 withdrawal rate that made the original guaranteed withdrawal 2 500 per year however if the cash balance five years later is now 60 000 then the 5 withdrawal rate would be applied to that higher amount thus going forward you would receive 3 000 per year 60 000 0 05 withdrawal rate pros and cons of a glwbthe primary benefit of a glwb rider is that it safeguards you from the possibility of receiving a lower lifetime payout if the market takes a hit in addition the rider allows you to access your cash value if you need it which you cannot do with a traditional annuity because it ties up the money you put into the contract once annuitization begins 1the downside of course is the additional cost of purchasing this protection those who start paying into the annuity well before they annuitize have a lower exposure to market risk as it is that is they have more time for the stocks and bonds in their subaccounts to recover therefore customers with a longer time horizon may want to avoid the extra fee that comes with a glwb rider | |
what is a guaranteed lifetime withdrawal benefit glwb | a guaranteed lifetime withdrawal benefit glwb is a rider that you may be able to add to your variable annuity contract it guarantees a minimum payout level even if market losses reduce the cash value of the contract most riders also allow you to make withdrawals from your cash value as needed 1 | |
what are the downsides of a glwb | the obvious pitfall to a glwb rider on an annuity is the cost it s important to read the annuity documents carefully before you purchase this coverage | |
what is the step up feature on a glwb | the step up feature provides a larger guaranteed benefit each year if the cash value from the annuity s subaccounts has grown the annuity issuer compares the original benefit base amount with the current cash value every few years if the latter is bigger it will use that figure as the basis for future guaranteed benefits 1 | |
what is a guaranteed loan | a guaranteed loan is a loan that a third party guarantees or assumes the debt obligation for in the event that the borrower defaults sometimes a guaranteed loan is guaranteed by a government agency which will purchase the debt from the lending financial institution and take on responsibility for the loan | |
how a guaranteed loan works | a guaranteed loan agreement may be made when a borrower is an unattractive candidate for a regular bank loan it is a way for people who need financial assistance to secure funds when they otherwise may not qualify to acquire them and the guarantee means that the lending institution does not incur excessive risk in issuing these loans types of guaranteed loansthere are a variety of guaranteed loans some are safe and reliable ways to raise money but others involve risks that can include unusually high interest rates borrowers should carefully scrutinize the terms of any guaranteed loan they are considering one example of a guaranteed loan is a guaranteed mortgage the third party guaranteeing these home loans in most instances is the federal housing administration fha or department of veterans affairs va 12homebuyers who are considered risky borrowers they don t qualify for a conventional mortgage for example or they don t have an adequate down payment and have to borrow close to 100 of the home s value may get a guaranteed mortgage fha loans require that borrowers pay mortgage insurance to protect the lender in case the borrower defaults on their home loan 1another type of guaranteed loan is a federal student loan which is guaranteed by an agency of the federal government federal student loans are the easiest student loans to qualify for there is no credit check for example and they have the best terms and lowest interest rates because the u s department of education guarantees them with taxpayer dollars 3in order to apply for a federal student loan you must complete and submit the free application for federal student aid or fafsa each year that you want to remain eligible for federal student aid repayment on these loans begins after the student leaves college or drops below half time enrollment many loans also have a grace period 4payday loansthe third type of guaranteed loan is a payday loan when someone takes out a payday loan their paycheck plays the role of the third party that guarantees the loan a lending organization gives the borrower a loan and the borrower writes the lender a post dated check that the lender then cashes on that date typically two weeks later sometimes lenders will require electronic access to a borrower s account to pull out funds but it s best not to sign onto a guaranteed loan under those circumstances especially if the lender isn t a traditional bank 5payday guaranteed loans often ensnare borrowers in a cycle of debt with interest rates as high as 400 or more 5the problem with payday loans is that they tend to create a cycle of debt which can cause additional problems for people who are already in tough financial straits this can happen when a borrower doesn t have the funds to repay their loan at the end of the typical two week term in such a scenario the loan rolls into another loan with a whole new round of fees interest rates can be as high as 400 or more and lenders typically charge the highest rates allowed under local laws some unscrupulous lenders may even attempt to cash a borrower s check before the post date which creates the risk of overdraft 5alternatives to payday guaranteed loans include unsecured personal loans which are available through local banks or online credit card cash advances you can save considerable money over payday loans even with rates on advances as high as 30 or borrowing from a family member 6 | |
what is a guaranteed minimum accumulation benefit | the guaranteed minimum accumulation benefit gmab is a variable annuity rider that guarantees a minimum value to the annuitant after the accumulation period or another set period usually somewhere close to 10 years the gmab rider protects the value of the annuity from market fluctuations this optional benefit is available for an additional cost which varies per insurance provider understanding the guaranteed minimum accumulation benefitthe guaranteed minimum accumulation benefit will only be used if the annuity s market value falls below the minimum guaranteed value in certain scenarios the cumulative costs of the benefit are returned to the annuity if the value of the annuity is higher than the minimum benefit eliminating the need to use the rider in addition to the guaranteed minimum accumulation benefit which restricts withdrawals until after the accumulation period other guaranteed minimum living benefit riders may or may not have a holding period or require annuitization these include a guaranteed minimum income benefit gmib and a guaranteed minimum withdrawal benefit gmwb additionally there are two other riders a guaranteed lifetime withdrawal benefit and a standalone lifetime benefit gmab vs other guaranteed benefitsa guaranteed minimum income benefit gmib guarantees the annuitant a minimum income during retirement offering protection against market volatility if the investor annuitizes the contract payments will be based on the amount in the fund and a set interest rate this kind of rider is subject to both age limits and holding periods a guaranteed minimum withdrawal benefit gmwb is a hybrid product that guarantees that a percentage of the retirement fund will be eligible for annual withdrawals until the depletion of the initial investment percentages vary but typically range from 5 to 10 the amount available for withdrawal may have age restrictions if the investments perform well annuitants can take advantage of a step up option securing higher guaranteed withdrawals a guaranteed lifetime withdrawal benefit glwb also considered a hybrid product guarantees an investor a specific percentage of the fund s value for withdrawal during their lifetime offering further protection against market fluctuations a glwb is sometimes called a gmwb with a lifetime option a standalone lifetime benefit salb is similar to the glwb but doesn t require the purchase of an annuity generally an investor wanting access to their funds would have to annuitize or face penalties the salb offers lifetime access to the fund regardless of market performance with fees and certain restrictions | |
what is a guaranteed minimum income benefit gmib | a guaranteed minimum income benefit gmib is an optional rider that annuitants can purchase for their retirement annuities when the annuity has been annuitized this specific option guarantees that the annuitant will receive a minimum value of payments on a regular basis regardless of other circumstances understanding guaranteed minimum income benefits gmibs a guaranteed minimum income benefit gmib ensures that an annuitant will receive payments regardless of market conditions this minimum payment amount is predetermined by assessing the future value of the initial investment this option is only beneficial to annuitants who plan to annuitize their annuity the gmib feature is typically found in variable annuities when a person purchases a variable annuity they will choose from a variety of underlying investment options the annuity s payments once annuitized will partly be based on the performance of the underlying investments variable annuities appeal to investors because they allow annuitants to participate in market growth however market declines can result in the annuity losing value and consequently lower annuity payouts for example a gmib feature may provide the annuity purchaser with the option to receive either a payment based on the actual market value of the variable annuity investment or the value of the initial investment compounding at six percent interest annually another type of gmib feature may guarantee an annuity benefit based on the highest value the investment account ever reached different annuity providers may call the gmib by different names such as guaranteed retirement income program or grip or guaranteed interest account or gia advantages and disadvantages of a gmibthe guaranteed minimum income benefit feature is one way to help offset the market risk that comes with investing in a variable annuity by guaranteeing a minimum level of annuity payments regardless of investment performance a gmib feature can provide additional security for retirees who plan to live on their annuity income however add on annuity benefits such as a gmib come with additional costs and fees which can eat into any investment growth additionally there are many complex factors that go into calculating annuity payments particularly when a gmib provision is involved for this reason it can be difficult to compare the different options offered by annuity providers against one another variable annuities also offer a limited menu of investment options which may not meet the needs of all investors | |
what is a guaranteed minimum withdrawal benefit gmwb | a guaranteed minimum withdrawal benefit gmwb is a type of rider or contract attached to some annuity insurance policies it guarantees the policyholder a steady stream of annual withdrawals via the return of all premiums paid into the contract regardless of an investment s performance through a series of annual withdrawals a gmwb is unlike a guaranteed minimum income benefit gmib where the latter offers a payout of specified minimum periodic income after a waiting period regardless of the variable annuity s investment performance understanding guaranteed minimum withdrawal benefit gmwb guaranteed minimum withdrawal benefit gmwb riders are available for some fixed annuity and variable annuity products during market downturns the policyholder or annuitant can withdraw a maximum percentage of their entire investments in the annuity annual maximum percentages available for withdrawal vary with contracts but are usually between 5 and 10 of the initial investment amount until reaching the depletion of the total initial investment the annuitant may continue to receive income during the withdrawal period a gmwb protects annuitants against investment losses without losing the benefit of upside gain for example suppose that jamie s initial investment was 100 000 but because of downturns in the economy that investment is now only worth 85 000 since jamie had purchased a guaranteed minimum withdrawal benefit with a rate of 10 she will be able to activate the rider contract to withdraw a certain percentage each year 8 500 in this case until she recovers the entire 100 000 initial investment in some cases gmwb riders include the ability to withdraw higher amounts when the market is booming and the annuity fund is growing using these riders the annuitant may potentially withdraw income higher than the maximum investment revisiting the example above say the initial investment is now worth 150 000 if jamie s rider includes a clause where she may realize 2 of the profits earned she might withdraw more than the annual 8 500 this scenario is applicable if her rider included the ability to adjust to favorable market trends | |
how is a gmwb calculated | the amount available for withdrawal may also link to a policy holder s age when they begin to make withdrawals for example the rider agreement may allow you to take 4 of your investments if you begin taking withdrawals between the ages of 60 and 64 income increases to 4 5 if you start taking them between the ages of 65 and 69 withdrawals after the age of 70 can be at 5 before the age of 59 withdrawals from the annuity may be subject to early withdrawal penalties of 10 by the internal revenue service the terms of gmwb riders including fees vary depending on the provider which is typically an insurance company other available annuity riders include guaranteed lifetime withdrawal benefits and guaranteed minimum accumulation benefits | |
what are guaranteed payments to partners | guaranteed payments to partners are payments meant to compensate a partner for services rendered or use of capital essentially they are the equivalent of a salary for partners or limited liability company llc members these kinds of payments eliminate the risk of a partner making personal contributions of time or property and then never getting compensated if the partnership does not prove to be successful 1the word guaranteed refers to the fact that these kinds of payments known as first priority distributions are made without regard to the partnership s profitability in fact such payments constitute a net loss for the partnership they can create special and unexpected tax implications if they are not handled correctly this can prove complicated especially as the internal revenue service irs and the courts have not agreed at times on what constitutes a guaranteed payment to a partner 1understanding guaranteed payments to partnersguaranteed payments to partners are outlined in section 707 c of the internal revenue code irc which defines such payments as those made by a partnership to an individual partner for services or providing capital and states that they are determined without regard to the income of the partnership 2 | |
when such payments meet this definition they are considered made to a non partner for tax purposes for both the partnership payer and the recipient payee guaranteed payments to partners are always treated as ordinary income for the partner for the partnership such payment is deductible under irc section 162 as ordinary or necessary business expenses or capitalized under irc section 263 341 | the concept of guaranteed payments to partners may seem pretty simple but the details can make them complicated payments that have not been structured properly can lead to unexpected and expensive tax issues for both the partner receiving payment and the other partners tax issues for guaranteed payments to partnerswith regard to a partnership it might have an agreement that a partner is to receive 20 of partnership income before any guaranteed payments happen with a stipulation that they must receive at least 13 000 if partnership income is 100 000 the partner would get 20 000 none of which would be a guaranteed payment so it could not be deducted by the partnership however if the partnership earned 30 000 then the partner would only get 6 000 as their share as they are due a minimum of 13 000 the remaining 7 000 would be made in the form of a guaranteed payment and thus eligible for tax deduction by the partnership 1with regard to a partner an ill timed payment could increase their tax burden consider the timing issues under a scenario that has the partner using the calendar year as their fiscal year while the partnership s fiscal year ends on sept 30 if a partner were to receive a guaranteed payment after sept 30 but before jan 1 that income would have to be included in the partner s following tax year even though it occurred in the current year 1there are also special considerations that must be taken into account with guaranteed payments to partners and real estate as local governments sometimes levy a tax on unincorporated businesses for example new york city which functions under a complicated new york state business tax code has its own unincorporated business tax ubt that applies to partnerships as well as sole proprietorships while the tax burden can be significant exempted from it is net income from renting and ownership of the rental real estate 5 therefore real estate partnerships should consider the tax implications of any guaranteed payment to a partner these can include when a real estate partnership makes a guaranteed payment as a retirement payment it is classified as ordinary income for services rendered to the partner making it earned income as such it is subject to self employment tax which can be expensive however if it were characterized as a distributive share it would not be subject to self employment tax thanks to the above mentioned exemption 1 | |
what is the purpose of guaranteed payments to partners | guaranteed payments to partners are intended to compensate them for services made or the use of capital they are made without any link to the partnership s profitability and indeed represent a net loss to the partnership in effect they act as a salary for the partner shielding partners from risk if the partnership is not successful | |
what are the tax implications of guaranteed payments to partners | these can get rather complicated but basically a guaranteed payment to a partner is treated as ordinary income of the partner and taxed as such the partnership can either take a guaranteed payment as a tax deduction or capitalize it | |
what if the partnership s fiscal year is different from the partner s | this can lead to an unintended income increase for the partner as guaranteed payments made after the end of a partnership s fiscal year but before the end of the partner s fiscal year would get counted as income in the partner s following fiscal year not the one in which it is actually made the bottom lineguaranteed payments to partners are meant to compensate members of a partnership in return for time invested services provided or capital made available the payments are in essence salary for partners regardless of whether the partnership is successful the payments can have various tax implications that must be carefully considered in order for beneficiaries to avoid fines or significant tax burdens | |
what is a guaranteed renewable policy | a guaranteed renewable policy is an insurance policy feature that ensures that an insurer is obligated to continue coverage as long as premiums are paid on the policy while re insurability is guaranteed premiums can rise based on the filing of a claim injury or other factors that could increase the risk of future claims understanding guaranteed renewable policiesmost insurers offer both guaranteed renewable policies and non cancellable policies if premiums are similar for both a guaranteed and a non cancellable policy the non cancellable policy is a better deal for the consumer because it offers the double guarantee of re insurability and locked in premiums in total insurers typically offer three types of policies non cancellable plus guaranteed renewable guaranteed renewable and conditionally renewable a non cancellable and guaranteed renewable policy guarantees that there will be no changes to your premium schedule your monthly benefits or your policy benefits up to age 65 or another specified age unless you request them the exception to this is if you file a claim experience an injury or if there is some other factor that the insurance company believes increases the risk of future claims in this case the insurance company can raise your premiums this type of policy is often elected when purchasing disability insurance most people cannot know for certain that their income will never go down in the future if you purchase a non cancellable and guaranteed renewable policy even if your income goes down later in life and you are totally disabled the company will pay you the total disability benefit you originally placed in force even though there is not a drastic price difference non cancellable and guaranteed renewable policies typically cost more than guaranteed renewable policies non cancellable and guaranteed renewable policies are generally preferred because the policyholder will not be impacted if an insurance company announces a massive rate increase in the future this insurance policy is not as comprehensive as a non cancellable and guaranteed renewable policy with a non cancellable and guaranteed renewable policy the policyholder can choose to make changes to their premium schedule monthly benefits or policy benefits with a guaranteed renewable policy that choice belongs to the insurance company and most insurance companies will try to decrease their liability if they can a conditionally renewable policy offers the least benefits to the policyholder compared to the other two policies non cancellable and guaranteed renewable and guaranteed renewable a conditionally renewable policy offers no guarantee that your same benefits will be renewed every year the insurance company can change the conditions of your policy every year if they choose to | |
what is guaranteed stock | guaranteed stock has two meanings one applied to dividends and one applied to inventory the more common reference is to an infrequently used form of common or preferred stock in which the dividends are guaranteed by one or more other companies guaranteed stock issues like guaranteed bonds have most often used by railroads and public utilities the guaranteed dividend can increase the stock s price the second meaning for guaranteed stock correlates to a company s physical inventory in this use of the term guaranteed stock refers to commonly purchased items that a company always keeps a supply of for customers to purchase understanding guaranteed stockguaranteed stock in the financial world is used on rare occasions when a company either can t pay dividends or is in danger of not being able to continue paying dividends a company that doesn t earn a profit can t pay dividends a company that can temporarily pay dividends but has considerable financial issues that could threaten future profitability cannot guarantee dividends in the future in both scenarios the company cannot guarantee that it will be able to pay dividends and continue doing so as a result a third party must come in to guarantee that the company will pay the dividend this is different from standard preferred stock which is typically guaranteed even in the case of bankruptcy preferred stockholders receive priority over common stockholders who cannot receive a dividend until the preferred shareholders dividend has been paid in full if the company files for bankruptcy and must liquidate assets preferred stockholders receive payments before the common stockholders but not before the creditors secured creditors general creditors and bondholders guaranteed stock is used infrequently on occasions when a company is unable to pay dividends or is unlikely to be able to continue paying dividends clarifying guaranteed stock inventoryhowever there is some risk with this strategy as the company faces the costs associated with carrying a large amount of inventory it may not want to or be able to spend the money needed to have all of its inventory guaranteed in addition if the inventory fails to sell by a certain time period it may that it is stuck with a surplus which it then has to sell at a discount causing it to lose money even worse particularly in terms of technology inventory can become obsolete and potentially incapable of being sold by having guaranteed stock or a full supply of all of its inventory a company can acquire an advantage over competitors who do not have all their products available customers will have more and better options insofar as what they can buy and any orders can be fulfilled and delivered faster | |
what is a guarantor | a guarantor is a financial term describing an individual who promises to pay a borrower s debt if the borrower defaults on their loan obligation guarantors pledge their own assets as collateral against the loans on rare occasions individuals act as their own guarantors by pledging their own assets against the loan the term guarantor is often interchanged with the term surety understanding a guarantora guarantor is typically over the age of 18 and resides in the country where the payment agreement occurs guarantors generally exhibit exemplary credit histories and sufficient income to cover the loan payments if and when the borrower defaults at which time the guarantor s assets may be seized by the lender and if the borrower chronically makes payments late the guarantor may be on the hook for additional interest owed or penalty costs types of guarantorsthere are many different scenarios in which a guarantor would need to be used this ranges from assisting people with poor credit histories to simply assisting those without a high enough income guarantors also don t necessarily need to be liable for the entire monetary obligation in the guarantee below are different situations that would require a guarantor as well as the type of guarantor in a specific guarantee in addition to pledging their assets as collateral against loans guarantors may also help individuals land jobs and secure passport documents in these situations guarantors certify that they personally know the applicants and corroborate their identities by confirming photo ids as defined under the terms of the loan agreement a guarantor can either be limited or unlimited concerning timetables and levels of financial involvement case in point a limited guarantor may be asked to guarantee a loan only up to a certain time after which the borrower alone assumes responsibility for the remaining payments and alone suffers the consequences of defaulting a limited guarantor may also only be responsible for backing a certain percentage of the loan referred to as a penal sum this differs from unlimited guarantors who are liable for the entire amount of the loan throughout the entire duration of the contract guarantors aren t solely used by borrowers with poor credit histories pointedly landlords frequently require first time property renters to provide lease guarantors this commonly occurs with college students whose parents assume the role of the guarantor in case the tenant is unable to make the rent or prematurely breaks the lease agreement guarantors vs co signersa guarantor differs from a co signer who co owns the asset and whose name appears on titles co signer arrangements typically occur when the borrower s qualifying income is less than the figure stipulated in the lender s requirement this differs from guarantors who step in only when borrowers have sufficient income but are thwarted by lousy credit histories co signers share ownership of an asset while guarantors have no claim to the asset purchased by the borrower however in the event the borrower has a claim against a third party that has caused the default the guarantor has the right to invoke a process called subrogation step into the shoes of the borrower to recover damages for example in a rental agreement a co signer would be responsible for the rent from day one whereas a guarantor would only be responsible for the rent if the renter fails to make a payment this also applies to any loan guarantors are only notified when the borrower defaults not for any payment before that in the event of a default the guarantor s credit history may be adversely affected which may limit their chances of securing loans in the future in essence a co signer takes on more financial responsibility than a guarantor does as a co signer is equally responsible from the onset of the agreement whereas a guarantor is only responsible once the primary party to the contract fails to meet their obligation advantages and disadvantages of guarantorsin an agreement with a guarantor the advantages usually lie with the primary party in the contract whereas the disadvantages usually lie with the guarantor having a guarantor means that the loan or agreement has a higher chance of being approved and much more quickly most likely it can allow for borrowing more and receiving a better interest rate though loans with guarantors tend to have higher interest rates in a rental agreement one way to avoid needing a guarantor is by paying a few months of rent upfront if you are in a position to do so the disadvantages lie with the guarantor if the person you are guaranteeing fails to pay their obligations then you are on the hook for the amount if you are not in the financial situation to make the payments then you are still liable for the amount and your credit score will be negatively impacted and legal action may be taken against you also if you guarantee a loan then your ability to borrow additional money for something else is limited because you are tied to an existing obligation helps a borrower obtain a loan or a rental much easier allows for the ability to borrow a higher amount can help the borrower improve their credit history the guarantor may be liable for the outstanding obligation the guarantor s credit score could be negatively impacted the ability to obtain another loan for a separate use is limited | |
is a guarantor a co signer | though the terms are used interchangeably they are both different a co signer takes on equal responsibility in an agreement co owns the asset and is responsible for payments from the start of the agreement a guarantor is only responsible for payments once the primary party of the agreement defaults and is then notified by the lender a co signer has more financial responsibility than a guarantor | |
is a parent a guarantor | a parent can act as a guarantor and often does for a child for their child s first rental property as the child s income is usually not high enough at a young age | |
how do you qualify as a guarantor | different agreements and different lenders have different requirements for a guarantor at the minimum a guarantor will need to have a high credit score without any issues in their credit report they will also have to have an income that is a certain multiple of the monthly or annual payments | |
how much do you need to earn to be a guarantor | there is no specific amount that an individual needs to earn to be a guarantor the amount relates directly to the loan in question or the rent on a property for rental agreements landlords usually expect the guarantor to have an annual income that is at least 40 times the monthly rent | |
what happens if a guarantor cannot pay | if a guarantor cannot pay both they and the tenant are liable for the obligations the lender will begin collection proceedings against both the guarantor and the tenant which will adversely impact the credit profile of both the bottom linea guarantor is an individual that agrees to pay a borrower s debt if the borrower defaults on their obligation a guarantor is not a primary party to the agreement but is considered to be an additional comfort for a lender a guarantor will have a strong credit score and earn sufficient income to meet the obligation having a guarantor on a loan agreement greatly benefits the borrower it allows for an agreement to be approved much faster and often at a higher amount in the event a borrower defaults the guarantor must meet the obligation if they do not they are still liable and can have a lawsuit brought against them for the outstanding amount they will also see a negative hit on their credit score | |
what is guerrilla marketing | guerrilla marketing is a marketing tactic in which a company uses surprise and or unconventional methods and interactions in order to promote a product or service guerrilla marketing is different from traditional marketing in that it often relies on personal interaction has a smaller budget emanates from an original idea to engage the target audience and focuses on smaller groups of promoters that are responsible for getting the word out in a particular location or locations rather than through widespread uniform marketing campaigns understanding guerrilla marketingcompanies using guerrilla marketing rely on its in your face promotions to be spread through viral marketing or word of mouth thus reaching a broader audience for free connection to the emotions of a consumer is key to guerrilla marketing the use of this tactic is not designed for all types of goods and services and it is often used for more edgy products and to target younger consumers who are more likely to respond positively guerrilla marketing takes place in public places that offer as big an audience as possible such as streets concerts public parks sporting events festivals beaches and shopping centers one key element of guerrilla marketing is choosing the right time and place to conduct a campaign so as to avoid potential legal issues guerrilla marketing can be indoor outdoor an event ambush or experiential meant to get the public to interact with a brand guerrilla marketing is legal though some approaches may border the boundary of being ethical guerrilla marketing historyguerrilla marketing is a product of the shift from traditional print radio and television marketing to electronic media it was coined by jay conrad levinson in his 1984 book guerrilla marketing 1 the goal is to create buzz about a product or brand so that it increases the likelihood that a consumer will purchase the product or service or talk about it with other potential buyers guerrilla marketing can be very cost effective for small businesses and startups if they manage to create a viral marketing phenomenon this technique can be centered around the business s core mission such as education giving growth technology climate or productivity and then the company can design initiatives that promote those values in campaign forms give back to the community inspire raise awareness help etc these are more effective messages conveyed by the company s actions and shared via word of mouth by the beneficiaries of the campaigns guerrilla marketing typesthere are many kinds of guerrilla marketing some examples include buzz marketing is a marketing technique that focuses on word of mouth distribution often deployed in social media this strategy relies on one user sharing content from a company with their social network friends or family instead of trying to generate excitement by itself guerrilla marketing relies on customers to organically raise awareness of a product or company stealth marketing is a low cost strategy that strives to market to a customer without the customer realizing they are being marketed to consider the last time you watched tv although you may not be fully attentive during commercials companies that deploy tv advertisements may be attempting to market products to you without you explicitly realizing it ambient marketing is a guerrilla marketing technique that strives to blend into a natural environment as opposed to a more explicit form of advertising an example of ambient marketing is promotions on a bus bench instead of creating a guerrilla marketing campaign that obviously sticks out some marketing departments may strive for more subtle guerrilla marketing campaigns to minimize the risk of turning off customers imagine watching a sporting event and seeing several advertisements of companies that sponsored the event in many cases companies may try to to employ coattail marketing which entails appearing like a sponsor although they are not popular within event sponsorships ambush marketing is often employed as a guerrilla marketing strategy by companies looking to save money yet capitalize on a major event that is occurring projection advertising entails placing large captivating ads often on the sides of buildings or bland walls this style of guerrilla marketing often allows companies to personalize promotions especially for events instead of a more permanent form of advertising that requires capital investments or long term agreements projection advertising may be more informal and require less upfront capital grassroots marketing is a guerrilla marketing approach that relies on fewer resources companies that embrace grassroots marketing often employ low cost marketing strategies that rely on people s time such as handing out flyers as opposed to larger marketing strategies often employed by local or small companies grassroots marketing is a simpler strategy than embarking on a marketing campaign the goal of a guerrilla marketing strategy is usually to spend less money if this style of marketing leads to higher costs reevaluate your spending as there may be more cost effective approaches to marketing a brand guerrilla marketing s advantages and disadvantagesmanagement often embarks on guerrilla marketing because it is usually a budget friendly option instead of needing to deploy lots of capital guerrilla marketing is often less expensive than other marketing campaigns startups local businesses or companies with fewer corporate restrictions often deploy guerrilla marketing techniques because this method also allows for greater creative capacity guerrilla marketing often relies on informal means of marketing information allowing marketing professionals to utilize less traditional ways to deploy their strategies because marketing professionals have the ability to be more creative some guerrilla marketing campaigns can have a wider reach not only does this have the opportunity to be more profitable than other campaigns but also marketing professionals may find guerrilla marketing campaigns more desirable and fun to deploy guerrilla marketing strategies are usually less structured for this reason guerrilla marketing endeavors are often less successful and have a greater risk of failure as there is less structure recipients of the marketing content may not get a consistent message or may misunderstand the messaging to some guerrilla marketing is an adverse sense of marketing some may prefer not to receive such marketing therefore some consumers are put at risk of being adversely impacted by guerrilla marketing techniques perhaps the greatest downside of guerrilla marketing is its unpredictability because there is less structure marketing professionals may not be able to collect metrics to gauge whether the campaign is successful it may also use nontraditional guerrilla techniques that the company is unsure will be successful often a less expensive option compared to other marketing campaign techniquesusually allows for greater creativitymay reach a broader audience compared to traditional marketing campaignsmay be more fun for marketing professionals to embark onless structure often leads to less successful endeavorsmay not deliver consistent messagingmay be seen as a turn off by some individualsmay be more unpredictability due to data being difficult to track or collectguerrilla marketing examplesleading up to the release of deadpool the marvel character was issued his own tinder profile as tinder is not a typical avenue for promoting a movie this absurd approach to advertising the film and character is a strong example of guerrilla marketing 2unsuspecting college students in queens new york received unsolicited doses of happiness from coca cola in a guerrilla marketing campaign armed with real humans inside a vending machine dubbed the happiness machine also offered pizzas flowers and a six foot long sandwich this guerrilla marketing campaign went on to win awards 3though never confirmed some suspect a 2017 breakup that played out on burger king s instagram was staged by the hamburger company as the drama unfolded within the comment section of the company s social media account more social media users became engrossed in the tale some suspect the entire situation was staged by burger king to incite interest in the company s page and boost traffic 4finally consider leaving a club and seeing a garbage can full of red bull cans one must presume that the drink was popular and consumed by many within the club correct it turns out that red bull may have embarked on an empty can guerrilla campaign by placing empty cans in bins around clubs the company presumably wanted to create the impression that the drink was popular at the club 5guerrilla marketing mistakeswith the risks inherent to guerrilla marketing and the sometimes uncharted territory it travels in there are a number of examples of campaigns gone awry | |
is guerrilla marketing illegal | guerrilla marketing is completely legal although some techniques are ethically questionable there is nothing illegal about these strategies often companies embark on guerrilla marketing strategies because of a lack of resources or a more creative approach to marketing | |
why is it called guerrilla marketing | guerrilla marketing is derived from guerrilla warfare the technique of physical combat that relies on using different unique methods to gain an advantage instead of a large organized approach to gaining position guerrilla warfare relies as does guerrilla marketing on small tactics for success | |
what makes guerrilla marketing campaigns successful | guerrilla marketing works because it is often a more memorable and unconventional approach to marketing convention marketing may be drier more deliberate and safer on the other hand consumers may be more likely to feel amazed or wowed by a guerrilla marketing approach the primary goal of a guerrilla marketing campaign is to make an impression on a client and this approach may be more successful compared to more simplistic strategies | |
what is the first step of guerrilla marketing | to deploy a guerrilla marketing strategy a company must know its audience the first step is to best understand who the company wants to market to and the product it is able to offer once a company best understands its market it is able to decide which guerrilla marketing technique makes the most sense for not only its customers but also the product it wants to offer the bottom lineinstead of using conventional marketing approaches guerrilla marketing entails using unconventional approaches to attract interest in a company product or brand using low or no cost methods of marketing the company embraces a more simplistic approach to marketing using more interesting strategies to attempt to lure customers | |
what is company guidance | guidance is an informal report a public company issues to shareholders detailing the earnings it expects to achieve in the upcoming fiscal quarter or year ahead guidance also referred to as forward earnings guidance or a forward looking statement typically includes internal projections for revenue earnings and capital spending and is subject to revision in the interim guidance can be contrasted with analysts estimates which are generated by external experts | |
how company guidance works | company guidance is typically released immediately after a company publishes its latest quarterly earnings report and is often discussed in depth during a meeting between industry analysts and company executives companies are not legally required to provide earnings guidance although it is common practice for many of them to do so the information guidance is based on normally includes sales projections market conditions and anticipated company spending some companies provide guidance on other aspects of their financial activities too such as inventory units sold and cash flow a company may revise its earnings guidance upwards or downwards later in the quarter if its outlook changes significantly impact of company guidanceproviding forecasts to investors is one of the oldest wall street traditions in earlier times earnings guidance was called the whisper number the only difference is that whisper numbers were given to only selected individuals such as analysts or brokers so that they could inform their big clients fair disclosure laws known as regulation fd made this illegal and companies now have to broadcast their expectations to the world giving all investors access to this information at the same time any comments management make about the company s future prospects are studied closely by investors an inside perspective on how business is faring since the last figures were collected and is likely to develop in the coming months can potentally trigger a share price rerating guidance reports tend to significantly influence analysts stock ratings which affect many investors decisions on whether to buy hold or sell a stock for example if a company s management dispenses guidance figures that fall well below market expectations a number of analysts will probably downgrade the stock causing many investors to dump it special considerationsthere is always a risk that a company s guidance may turn out to be wrong few investors mind if the company low balls its estimate many are irate if they miss their stated goals in the u s safe harbor provisions protect companies from being sued if they fail to meet their own forward looking expectations most notably in 1995 congress enacted the private securities litigation reform act pslra which helps shield companies from securities fraud lawsuits stemming from unachieved expectations to further protect themselves from lawsuits companies pair their guidance reports with disclosure statements maintaining that their projections are by no means guaranteed companies are under no obligation to update their guidance after initial reports are issued even if subsequent events render their projections unlikely some do however in order to get the bad news out there before the earnings release date advantages and disadvantages of company guidancesome in the investment community feel that guidance does a company and its investors more harm than good investment guru warren buffett recently called for companies to stop issuing quarterly earnings guidance he believes that it forces companies to place too high a priority on making the numbers at the expense of nurturing the long term interests of the business others disagree believing that quarterly earnings reports cause investors to become more educated about short term results versus long term initiatives proponents also believe that providing less information to the public would not inevitably reduce stock volatility | |
what is the guideline premium and corridor test gpt | the guideline premium and corridor test gpt is used to determine whether an insurance product can be taxed as insurance rather than as an investment gpt limits the amount of premiums that can be paid into an insurance policy relative to the policy s death benefit understanding the guideline premium and corridor test gpt the gpt is a method the internal revenue service irs uses to determine whether or not a life insurance policy is allowed advantaged tax treatment 1life insurance policies come in many different shapes and sizes a special component of a universal life insurance policy is that the premium is split into two portions the first portion is allocated towards the cost of the policy whereas the second portion goes towards a cash accumulation account a sort of savings account for the insured this cash reserve can be borrowed against or allowed withdrawals both with certain stipulations life insurance policies can be structured to either take full advantage of the death benefit when a person passes away or full advantage of the cash accumulation reserve those that are death benefit focused start with higher premiums in the early years and lower premiums in the later years life insurance policies focused on cash accumulation are the opposite with lower premiums in the early years and higher premiums in the later years regardless of the life insurance policy selected each policy must pass a specific test to determine whether it qualifies to be taxed as an insurance product or taxed as an investment being taxed as an insurance product is better as the tax rate is lower there are two tests to determine this factor the guideline premium and corridor test gpt and the cash value accumulation test cvat guideline premium and corridor test gpt implementationthe gpt method is used when the policyholder wants to pay the maximum amount of premiums while maintaining a variable death benefit or wants to maximize the amount of cash that they can accumulate in the policy more so than maximizing the death benefit rather than focusing on the death benefit available at life expectancy the gpt is used when the policyholder wants to maximize the cash accumulation portion with benefits at a later age insurance policies can grow in value on a tax deferred basis with death benefits being exempt from income tax or capital gains tax being able to pass the gpt is incredibly important to a policyholder as well as the insurer if an insurance product fails to pass the test it is no longer considered an insurance product and is thus taxed like an investment meaning that failing to pass the test will lead to a higher tax rate in addition to the guided premium and corridor test an insurer has the option of designing a policy so that it passes the cash value accumulation test cvat 2 the cvat limits the cash value relative to the death benefit unlike the gpt which limits the premiums relative to the death benefit determining which test to use is based on which insurance product is chosen the insurer must indicate which test is going to be used on the issue date and once the policy is issued the insurer cannot decide to use the other test option instead the choice of test can determine what the policy premiums cash value and benefits will be guideline premium and corridor test gpt and the deficit reduction act defra as universal life insurance policies have an investment aspect through cash accumulation with interest earned on the cash reserves they started being regarded as investment vehicles with cash surrender values lawmakers believed it was important to differentiate between life insurance policies that were being used as traditional insurance or as investment vehicles so they established the guideline premium and corridor test within the deficit reduction act of 1984 defra 2defra established the qualifications that universal life insurance policies must meet to maintain advantaged tax status under the internal revenue code irc section 7702 1 to fulfill the irc definition of life insurance life insurance contracts must provide for a sufficient amount at risk meaning that the pure death benefit protection that a beneficiary would receive upon the death of the insured is adequate | |
what were guilder shares | a guilder share was an ownership stake in a dutch company that could be traded in the united states because it represented shares that had been canceled in dutch stock markets guilder shares also called new york shares represented a special international trading arrangement for shares of companies based in the netherlands only since the stocks of dutch companies could not be traded through american depository receipts adrs at the time today adrs can in fact be listed on dutch companies and so guilder shares are no longer used understanding guilder shares | |
when buying shares of a company located in a foreign country u s citizens will generally buy an adr a certificate that represents those foreign shares | since the netherlands did not allow dutch company stock to be traded in other countries a certain number of shares must be canceled in the netherlands then grouped and sold as guilder shares that can then be issued in the u s the guilder was also once the name of the dutch national currency before it joined the euro dutch adrs todayan american depositary receipt adr is a negotiable certificate issued by a u s depositary bank representing a specified number of shares often one share of a foreign company s stock the adr trades on u s stock markets as any domestic shares would adrs offer u s investors a way to purchase stock in overseas companies that would not be available otherwise foreign firms also benefit as adrs enable them to attract american investors and capital without the hassle and expense of listing on u s stock exchanges today several dutch adrs are tradeable on u s exchanges several more trade in the u s over the counter otc the ones listed on major exchanges in the u s include | |
what is the guinea franc gnf | gnf is the currency abbreviation for the guinea franc the national currency of the republic of guinea a country in west africa the republic of guinea was formerly known as french guinea today it is often referred to as guinea conakry which refers to the name of its capital city to distinguish it from its neighboring country guinea bissau as of august 2023 us 1 is equal to roughly 8 586 gnf understanding the guinea franc gnf the gnf is actually the second franc used as a currency in the country guinea was a french colony and gained its independence in 1958 prior to this the currency used in guinea was the cfa franc which between 1945 and 1958 was an abbreviation for the franc for colonies fran aises d afrique or former french colonies in africa in 1959 after guinea s independence the first guinean franc was issued as the country s currency 1 it was then replaced by the guinean syli which was used in the country from 1971 to 1985 in 1985 the second guinean franc replaced the syli at par guinea s economy is fueled by a rich reserve of minerals gold high grade iron ore and diamonds additionally it boasts the one of the world s largest reserves of bauxite which is one of the main exports for the west african nation 2however the country which has a gdp of 16 1 billion as of 2021 has faced stalled economic growth because of political instability 3 additionally the ebola virus slowed down guinea s economic growth in 2014 and 2015 4 however the country s gdp grew by 3 9 in 2021 the most recent year for which official data is available 5the gnf and cfa francguinea used to be part of the franc zone of former french colonies using the cfa franc as its official currency until its independence many of its neighboring nations 14 west african countries in total 12 of which are former french colonies still use the cfa franc together they make up the african financial community 6the cfa was created in 1945 after world war ii to keep from devaluing money in french colonies prior to this currencies in the french colonies were pegged to the french franc which was devalued with the signing of the bretton woods agreement in 1944 7 | |
when it was introduced in 1945 the exchange rate was 1 cfa to 1 70 french francs shifting from 1 cfa to 2 french francs in 1948 8 the currency kept parity when france switched its currency from the french franc to the euro the current fixed exchange rate for the cfa to the euro is 1 euro to 655 96 cfa francs 9 | disclaimerinvestopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
gun jumping or more commonly jumping the gun refers to selectively using financial information that has not been publicly announced at least two illegal methods of jumping the gun can be identified | understanding gun jumpinggun jumping flouts the rule that investors should make decisions based on the full disclosure available to the public in the prospectus not on information disseminated by the company that has not been approved by the sec if a company is found guilty of jumping the gun its ipo will be delayed in order to build market integrity trust and confidence regulators and market advocates discourage the use of private and undisclosed information in theory all market participants should be on an equal footing and have equal access to information | |
when certain classes of investors notably those on the inside or in a position of privileged access to information enjoy the benefits of jumping the gun it erodes the public s trust in financial institutions this lack of trust can damage economic growth | many rules and regulations are in place to prohibit or discourage financial actors from jumping the gun but the incentives can be enticing some of these rules may be explicit such as laws against insider trading others are more subtle such as the implicit public relations blowback an individual or a company can experience for using private information for personal gain nevertheless there are a couple of methods of stock analysis that get as close to gun jumping as it is possible without flouting the rules there is nothing wrong for example with calling wholesalers and retailers to see what brands are selling fastest or slowest or talking with people who work for a company to get a sense of how efficiently it is run and whether it seems flush with cash or ready to cut costs importantly the people who do such research are not obtaining information that no one else has access to they are trying to get a competitive advantage by asking questions that are not answered in public documents | |
who was gunnar myrdal | gunnar myrdal was a swedish keynesian economist and sociologist who won the 1974 nobel memorial prize in economics alongside conservative austrian economist friedrich hayek despite both men being on opposite ends of the political spectrum myrdal was best known for his work in international development and trade economics as well as for his activism promoting racial equality and opposing american foreign policy 1 investopedia alison czinkotaunderstanding gunnar myrdalgunnar myrdal a swedish social democrat member of parliament and one of the fathers of the swedish welfare state of the 1960s helped draft many social and economic programs 2 as an economist myrdal made early contributions to price theory incorporating the role of uncertainty and expectations on prices much of his later work focused on development economics and social problems he was awarded the nobel prize in economics in 1974 along with economist f a von hayek for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic social and institutional phenomena 3in addition to serving in parliament myrdal sat on the board of the bank of sweden and chaired the swedish post war planning commission he was sweden s minister of commerce from 1945 1947 and later was appointed as executive secretary of the united nations economic commission for europe 4throughout his subsequent career myrdal s economic research was predicated on his left wing political and social views his first post graduate published work the book the political element in the development of economic theory criticized the body of existing economic theory as a product of the political value judgments of its authors 5 despite being awarded the nobel prize he later public called for the abolition of the nobel prize in economics on the grounds that it was also sometimes awarded to economists who did not share his political beliefs 6in america he became famous for his influential 1944 book on race relations an american dilemma the negro problem in modern democracy his study was influential in the 1954 landmark u s supreme court decision brown v board of education which ended legal racial segregation in schools 7 a lifelong foe of inequality and supporter of wealth redistribution myrdal showed how economic policies implemented by president franklin delano roosevelt including the minimum wage law and restrictions on cotton production hurt african americans this book was particularly cited by the nobel prize committee as being of great importance in its decision to award him the prize 3later in life he became obsessed with third world poverty which led him to advocate land reform in south asia as a prerequisite for eradicating poverty myrdal authored a multivolume study of inequality and poverty in south asia and a follow up volume of policy prescriptions for income redistribution and land reform he was a vocal opponent of the u s war in vietnam and led an international commission on alleged american war crimes 8swedish economists claimed that keynes idea of using a stabilization policy to smooth out economic cycles was predated by myrdal s book monetary economics published in 1932 9 this policy involves deficit spending to boost the economy during slumps and increased taxation during economic expansions to prevent and overheating the economy like fellow liberal keynesian john kenneth galbraith myrdal would later criticize such policies because the fiscal brakes were seldom used during economic expansions and instead inflationary policies were continually applied which hurt the poorest in society myrdal was born in 1898 in sweden and died in 1987 he earned his law degree and doctorate in economics from stockholm university where he later became a professor of political and international economy his wife alva myrdal was the co winner of the nobel peace prize in 1982 for her efforts to promote world disarmament 10 their son the communist political writer and columnist jan myrdal spurned his parents liberal politics and was a maoist sympathizer and apologist for genocidal khmer rouge dictator pol pot he died in 2020 11 | |
what is the guns and butter curve | the guns and butter curve is the classic economic example of the production possibility curve which demonstrates the idea of opportunity cost in a theoretical economy with only two goods a choice must be made between how much of each good to produce as an economy produces more guns military spending it must reduce its production of butter food and vice versa understanding the guns and butter curvein the chart the curve represents all possible choices of production for the economy the dots represent two possible choices of outputs the point here is that every choice has an opportunity cost you can get more of something only by giving up something else also you ll notice that the curve is the limit of production you cannot produce outside the curve unless there is an increase in productivity though the curve is meant to show a strict divide between only two options production for military spending or food it can also represent spending on military personnel equipment and operations versus all nonmilitary spending in an economy this can include investments in domestic needs such as healthcare education utilities and other services guns and butter curve as a tradeoffthe guns and butter curve charts the tradeoff that occurs within the limits of production in a given economy money spent on the development and manufacture of jet fighters for example cannot be invested in critical infrastructure repairs such as the replacement of aging bridges if a nation chooses to focus on military buildup the only way for its domestic production needs to be met is through an overall elevation of production or productivity such an increase would allow for nonmilitary products to increase even as the military buildup was underway however such gains in economic production often mean the size and scope of military production would escalate in turn maintaining such elevated production in order to meet both needs can prove to be taxing on an economy potentially leading to capital drain in other areas that are necessary to maintain a productive economy for example research and development may see less investment if all the priority is given to current production the guns and butter curve shows the correlations that link government strategy investment and production guns and butter and market forcesthe constraints of the guns and butter curve can be used to illustrate the strain put on cold war era nations that focused on military buildup while consumer goods suffered in response sustained pressure to fulfill military needs for defense was a contributing factor in the dissolution of the former soviet union which experienced shortages on food houses and other domestic necessities part of the issue was the concerted effort to keep up with defense spending in the united states in order for the domestic needs of the citizens to be fully met the soviet union needed to escalate its overall production and it productivity one issue faced by the soviet union is that the decisions for production quotas were centralized whereas many parts of the u s economy were primarily driven by market forces rather than government planning while market forces can be capricious they are far faster at giving signals and allocating capital than a bureaucratic framework the innovations and productivity growth in the wider u s economy during the cold war era generated the wealth and revenue for the u s government to undertake a program of massive military spending without growth however the guns and butter curve represents a barrier that curtails the military ambitions of most nations via the threat of civil unrest when people don t have enough to eat there are of course exceptions to the idea that a military focused government would eventually be overthrown the ruling party of north korea for example continued to spend large amounts on weaponry and its standing military even during a period of severe famine and it continues to do so today despite widespread issues with malnutrition | |
what is a gunslinger | gunslinger is a slang term for an aggressive portfolio manager a gunslinger often uses high risk investment techniques to hopefully produce big returns rather than considering the long term value of the company underlying a stock gunslingers look at a stock s momentum and seek to benefit from short term trades based on sharp movements in a stock s price investopedia julie bangunderstanding gunslingersa gunslinger is an aggressive portfolio manager who uses high risk investment techniques to get maximum returns gunslingers look for an expected acceleration in stock prices earnings or revenue they take an aggressive position to benefit from sharp movements in the market gunslingers use leverage and margin to increase their returns gunslingers rarely hold a stock for an extended period they tend to make high profits in bull markets but their losses are above average in bear markets this risk taking may result in high rewards at times but overall portfolios losses often outweigh the gains many investors do not have the risk tolerance to watch a gunslinger manage their entire portfolio investors can put a small percentage of their risk capital into a fund run by a gunslinger gunslingers are very aggressive in their trading strategies often using leverage and margin accounts to shoot for higher returns they may achieve some spectacular payoffs but usually in the long run their portfolio losses will often outweigh their gains as is the case with most active investment strategies investment manager fred alger was considered a gunslinger in the 1960s bull market gunslingers originally referred to brash frontiersmen who were quick at the draw in a shootout this has translated into a forceful and adventurous participant in a particular sphere such as investing in the markets gunslingers and market timinggunslingers often engage in a form of market timing market timing is the act of moving in and out of the market or switching between asset classes based on using predictive methods such as technical indicators or economic data because it is extremely difficult to predict the future direction of the stock market investors who try to time the market especially mutual fund investors tend to underperform investors who remain invested some investors especially academics believe it is impossible to time the market other investors notably active traders believe strongly in market timing thus whether market timing is possible is a matter of opinion what can be said with certainty is it is very difficult to successfully time the market consistently over the long run for the average investor who does not have the time or desire to watch the market on a daily basis there are good reasons to avoid market timing and focus on investing in the long run | |
what is the guppy multiple moving average gmma | the guppy multiple moving average gmma is a technical indicator that aims to anticipate a potential breakout in the price of an asset the term gets its name from daryl guppy an australian financial columnist and book author who developed the concept in his book trading tactics the gmma uses the exponential moving average ema to capture the difference between price and value in a stock a convergence in these factors is associated with a significant trend change guppy maintains that the gmma is not a lagging indicator but a prior warning of a developing change in price and value guppy multiple moving average gmma formula and calculationthe formula for the guppy indicator uses exponential moving averages ema there is a short term group of mas and a long term group of mas both containing six mas for a total of 12 however one can insert their preferred number of periods n into the calculation to find each of the ma values repeat the steps below for each of the required mas alter the n value to calculate the ema you want for example use three to calculate the three period average and use 60 to calculate the 60 period ema | |
what does the gmma tell you | the degree of separation between the short and long term mas can be used as an indicator of trend strength if there s a wide separation then the prevailing trend is strong narrow separation or lines that are crisscrossings on the other hand indicates a weakening trend or a period of consolidation image by sabrina jiang investopedia 2021the crossover of the short and long term mas represent trend reversals if the short term crosses above the long term mas then a bullish reversal has occurred conversely if the short term mas cross below the longer term ones then a bearish reversal is occurring meanwhile when both groups of mas are moving horizontally or mostly moving sideways and heavily intertwined it means the asset lacks a price trend and therefore may not be a good candidate for trend trades these periods may be good for range trading though the gmma can be employed to identify changes in trends or gauge the strength of the current trend and are best used in conjunction with other technical indicators the indicator can also be used for trade signals when the short term group passes above the long term group of mas buy when the short term group passes below the longer term group sell these signals should be avoided when the price and the mas are moving sideways following a consolidation period watch for a crossover and separation when the lines start to separate this often means a breakout from the consolidation has occurred and a new trend could be underway during a strong uptrend when the short term mas move back toward the longer term mas but don t cross and then start to move back to the upside this is another opportunity to enter into long trades in the trending direction the same concept applies to downtrends for entering short trades the guppy multiple moving average gmma vs an exponential moving average ema the gmma is composed of 12 emas so it is essentially the same thing as an ema the guppy is a collection of emas that the creator believed helped isolate trades spot opportunities and warn about price reversals the multiple lines of the guppy help some traders see the strength or weakness in a trend better than if only using one or two emas limitations of the gmmathe main limitation of the guppy and the emas it is composed of is that it is a lagging indicator each ema represents the average price from the past it does not predict the future waiting for the averages to crossover can at times mean an entry or exit that is far too late as the price has already moved aggressively all mas are also prone to whipsaws this is when there is a crossover potentially resulting in a trade but the price doesn t move as expected and then the averages cross again resulting in a loss traders should use the gmma in conjunction with other technical indicators to maximize their odds of success for example traders might look at the relative strength index rsi to confirm whether a trend is getting top heavy and poised for a reversal or look at various chart patterns to determine other entry or exit points after a gmma crossover investopedia does not provide tax investment or financial services and advice the information is presented without consideration of the investment objectives risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors investing involves risk including the possible loss of principal | |
what is gwei | gwei is a denomination of the cryptocurrency ether eth the digital coin used on the ethereum network ethereum is a blockchain platform like bitcoin where users transact to buy and sell goods and services without an intermediary or interference from a third party similar to fiat currencies like the u s dollar or euro ether is broken into denominations wei is the smallest denomination of ether like cents are to the u s dollar however while there are 100 cents in a dollar there is one quintillion wei 18 zeros to one ether and one billion gwei to one ether 1understanding gweithe ethereum platform has a native cryptocurrency known as ether eth ethereum itself is a blockchain that supports a wide range of decentralized applications dapps sidechains and programs all of which can be used to develop other cryptocurrencies ethereum the blockchain processes the transaction for these other applications and users pay for the processing in ether these fees are payments made by users to compensate the validators for the computational and storage resources they provide for the ethereum virtual machine the fees are priced in small fractions of ether so denominations were needed to make it economical to charge transaction fees there are seven denominations used on the ethereum network gwei is the middle denomination making it simpler to use and understand because it can be used to express values above and below it transaction fees on ethereum are called gas fees or gas prices for instance on may 5 2024 the median transaction fee of the ethereum blockchain was five gwei 2 you could ve said the gas price was 0 000000005 eth but it is much easier to say five gwei you could also use any of the other denominations but most users comprehend gwei better ether denominations explainedthe list below displays the typical ether units notice in the table that the denominations each have an alternate name in parentheses based on influential figures in the world of cryptography for example gwei may also be called shannon after claude shannon an american mathematician cryptographer and crypto analysis guru 3investopedia sabrina jiangether s naming convention is a nod to its founding figures much like a 100 bill features an image of ben franklin and a 5 bill pictures abraham lincoln it s interesting to note that ethereum uses cryptic language and naming conventions just like bitcoin does here in order of appearance in the table is the significance of the ether units nicknames it s important to note that ethereum is constantly evolving so there are many denominations in use currently that are not in the yellow papers maintained by the ethereum developers and community 4 | |
what is a gwei | gwei is a denomination of the cryptocurrency ether used in the ethereum ecosystem | |
how much is a gwei | there are one billion gwei per ether eth how much one gwei is in fiat currency depends on its market value if ether s market value were 1 500 one gwei would be worth 0 0000015 | |
how much eth is 1 gwei | there are one billion gwei to one ether so one gwei is 0 000000001 eth the bottom linethe blockchain and global virtual machine ethereum has a native token called ether ether is further divided into smaller denominations to make it easier to express them gwei represents the middle denomination that is easiest to express values in one gwei is equal to 0 000000001 eth transaction fees also called gas on ethereum are charged in gwei making their small amounts easier to comprehend the comments opinions and analyses expressed on investopedia are for informational purposes only read our warranty and liability disclaimer for more info as of the date this article was written the author does not own cryptocurrency | |
what is gwei | gwei is a denomination of the cryptocurrency ether eth the digital coin used on the ethereum network ethereum is a blockchain platform like bitcoin where users transact to buy and sell goods and services without an intermediary or interference from a third party similar to fiat currencies like the u s dollar or euro ether is broken into denominations wei is the smallest denomination of ether like cents are to the u s dollar however while there are 100 cents in a dollar there is one quintillion wei 18 zeros to one ether and one billion gwei to one ether 1understanding gweithe ethereum platform has a native cryptocurrency known as ether eth ethereum itself is a blockchain that supports a wide range of decentralized applications dapps sidechains and programs all of which can be used to develop other cryptocurrencies ethereum the blockchain processes the transaction for these other applications and users pay for the processing in ether these fees are payments made by users to compensate the validators for the computational and storage resources they provide for the ethereum virtual machine the fees are priced in small fractions of ether so denominations were needed to make it economical to charge transaction fees there are seven denominations used on the ethereum network gwei is the middle denomination making it simpler to use and understand because it can be used to express values above and below it transaction fees on ethereum are called gas fees or gas prices for instance on may 5 2024 the median transaction fee of the ethereum blockchain was five gwei 2 you could ve said the gas price was 0 000000005 eth but it is much easier to say five gwei you could also use any of the other denominations but most users comprehend gwei better ether denominations explainedthe list below displays the typical ether units notice in the table that the denominations each have an alternate name in parentheses based on influential figures in the world of cryptography for example gwei may also be called shannon after claude shannon an american mathematician cryptographer and crypto analysis guru 3investopedia sabrina jiangether s naming convention is a nod to its founding figures much like a 100 bill features an image of ben franklin and a 5 bill pictures abraham lincoln it s interesting to note that ethereum uses cryptic language and naming conventions just like bitcoin does here in order of appearance in the table is the significance of the ether units nicknames it s important to note that ethereum is constantly evolving so there are many denominations in use currently that are not in the yellow papers maintained by the ethereum developers and community 4 | |
what is a gwei | gwei is a denomination of the cryptocurrency ether used in the ethereum ecosystem | |
how much is a gwei | there are one billion gwei per ether eth how much one gwei is in fiat currency depends on its market value if ether s market value were 1 500 one gwei would be worth 0 0000015 | |
how much eth is 1 gwei | there are one billion gwei to one ether so one gwei is 0 000000001 eth the bottom linethe blockchain and global virtual machine ethereum has a native token called ether ether is further divided into smaller denominations to make it easier to express them gwei represents the middle denomination that is easiest to express values in one gwei is equal to 0 000000001 eth transaction fees also called gas on ethereum are charged in gwei making their small amounts easier to comprehend the comments opinions and analyses expressed on investopedia are for informational purposes only read our warranty and liability disclaimer for more info as of the date this article was written the author does not own cryptocurrency | |
what is the haas school of business | the haas school of business is the business school of the university of california at berkeley founded in 1898 and located in berkeley california the school offers both undergraduate and graduate programs the haas school of business has the distinction of being the oldest american business school to be founded at a public university 1 it is also known for its high quality of instruction it is frequently ranked as among the top 10 best business schools in the world understanding the haas school of businesspreviously known as the university of california s college of commerce the haas school of business received its current name in 1989 following a nearly 25 million gift by the businessman and philanthropist walter a haas jr today haas school of business is home to about 2 500 students spread across their undergraduate and graduate programs as well as over 240 faculty members 2 the haas school of business s programs includes undergraduate majors in core business school subjects such as finance accounting and marketing as well as specialized undergraduate programs in entrepreneurship international business and even the intersection of business and biology in this respect the haas school of business is able to leverage its affiliation with the university of california at berkeley a world famous research university that has produced 37 nobel prizes of which 7 are held by current faculty 2 at the graduate level the haas school of business offers a range of mba and postgraduate programs the school s class of 2022 full time mba cohort is made up of 331 students 39 of whom are female 3 in addition to the full time mba program which lasts 21 months the school also offers a variety of mba programs designed for students who wish to study on a part time basis while continuing to work in their careers this includes a three year evening and weekend mba option as well as an executive mba program which lasts 19 months 4 example of the haas school of businessfor 2021 the haas school of business s full time mba program was rated as the 7th best program in the united states by us news and the economist and it was rated as the country s 8th 12th globally by the financial times with annual tuition of roughly 60 000 haas school of business mba grads saw a median starting salary of approximately 140 000 in 2020 of which just under 90 received their offers within 3 months of graduation in recent years these grads have found employment principally in the technology management consulting and financial services sectors 5 | |
what is a habendum clause | a habendum clause is a section of a contract that deals with property rights interests and other aspects of ownership given to one of the parties to a deal consisting of basic legal language it is usually included in property related documents most buyers and sellers have experience with it through real estate transfers but it is also used in all manner of leases and deeds especially in the oil and gas industry understanding a habendum clausethe content of a habendum clause varies depending on the exact nature of the contract in real estate contracts the habendum clause refers to the transfer of ownership of a property and any accompanying restrictions because the clause begins with the phrase to have and to hold the habendum clause is sometimes called the to have and to hold clause in oil and gas leases the habendum clause defines the primary term and secondary term of the lease dictating how long the lease is in force when used in the context of oil and gas leases the focus of the habendum clause is on the and so long thereafter portion that extends the lease if conditions are met in the oil and gas industry the habendum clause is also referred to as the term clause habendum clauses in real estatein real estate leases habendum clauses are a section of the contract that describes the rights and interests given to the lessee for outright real estate purchases a habendum clause deals with the transfer of ownership of a property and any accompanying restrictions usually the habendum clause states the property is transferred without restrictions this means the new owner has absolute ownership of the property upon satisfying their conditions usually payment in full and has the right to sell or bequeath the property to an heir and so on the type of property title transferred using a habendum clause is called fee simple absolute a fee simple absolute grants complete ownership of a property subject to government laws and powers because it typically begins with the phrase to have and to hold the habendum clause is sometimes called the to have and to hold clause some real estate transfers will include restrictions within the habendum clause for example a timeshare lease will outline the percentage of ownership being transferred and any other related restrictions sometimes the property or the land itself is subject to a countdown upon which ownership reverts to another entity some treaty lands allow development but cap the transfer of ownership at 100 years for example this makes any property on those lands attractive in the first half of the lease but the value is discounted as the time of ownership counts down to the deadline similarly some leases can be tied to the lifespan of the lessee with the property reverting to the original owner upon the buyer s death habendum clauses and oil gas leasesin the oil and gas sector the habendum clause sets out the primary term during which a company holds mineral rights to the land but is not obligated to start exploration the primary term can vary from one to ten years depending on how proven a given field is if the primary term passes without any production then the lease expires however if the leased area is drilled and oil or gas is flowing that is the lease is in production the secondary term begins and continues as long as the leased area is still producing in this context the habendum clause allows the lessor to sell the lease again if the lessee doesn t start production within the primary term but also protects the lessee if they invest in the land and are producing | |
what is a habendum clause | a habendum clause is a section of a contract that deals with property rights interests and other aspects of ownership given to one of the parties to a deal consisting of basic legal language it is usually included in property related documents most buyers and sellers have experience with it through real estate transfers but it is also used in all manner of leases and deeds especially in the oil and gas industry understanding a habendum clausethe content of a habendum clause varies depending on the exact nature of the contract in real estate contracts the habendum clause refers to the transfer of ownership of a property and any accompanying restrictions because the clause begins with the phrase to have and to hold the habendum clause is sometimes called the to have and to hold clause in oil and gas leases the habendum clause defines the primary term and secondary term of the lease dictating how long the lease is in force when used in the context of oil and gas leases the focus of the habendum clause is on the and so long thereafter portion that extends the lease if conditions are met in the oil and gas industry the habendum clause is also referred to as the term clause habendum clauses in real estatein real estate leases habendum clauses are a section of the contract that describes the rights and interests given to the lessee for outright real estate purchases a habendum clause deals with the transfer of ownership of a property and any accompanying restrictions usually the habendum clause states the property is transferred without restrictions this means the new owner has absolute ownership of the property upon satisfying their conditions usually payment in full and has the right to sell or bequeath the property to an heir and so on the type of property title transferred using a habendum clause is called fee simple absolute a fee simple absolute grants complete ownership of a property subject to government laws and powers because it typically begins with the phrase to have and to hold the habendum clause is sometimes called the to have and to hold clause some real estate transfers will include restrictions within the habendum clause for example a timeshare lease will outline the percentage of ownership being transferred and any other related restrictions sometimes the property or the land itself is subject to a countdown upon which ownership reverts to another entity some treaty lands allow development but cap the transfer of ownership at 100 years for example this makes any property on those lands attractive in the first half of the lease but the value is discounted as the time of ownership counts down to the deadline similarly some leases can be tied to the lifespan of the lessee with the property reverting to the original owner upon the buyer s death habendum clauses and oil gas leasesin the oil and gas sector the habendum clause sets out the primary term during which a company holds mineral rights to the land but is not obligated to start exploration the primary term can vary from one to ten years depending on how proven a given field is if the primary term passes without any production then the lease expires however if the leased area is drilled and oil or gas is flowing that is the lease is in production the secondary term begins and continues as long as the leased area is still producing in this context the habendum clause allows the lessor to sell the lease again if the lessee doesn t start production within the primary term but also protects the lessee if they invest in the land and are producing | |
what is to haggle | to haggle is when two parties involved in a transaction such as the purchase of a good and service negotiate the price until both parties can mutually agree on a fair price the process of haggling involves two parties making sequential offers and counteroffers to each other until a price is agreed upon the individual trying to buy the good and service is trying to pay the least amount possible while the seller s primary objective is to maximize the selling price haggling also may go by the names bargaining quibbling dickering or informal negotiating the act of haggling has been around since ancient times and continues to this day it is a common practice in real estate negotiations car purchases and at informal flea markets while it is rarely used in retail settings such as at supermarkets pharmacies or brand name clothing stores understanding hagglenot all transactions are open to bargaining both religious beliefs and regional customs may determine whether or not the seller is willing to engage in bargaining globally haggling has different accepted levels of tolerance in europe and north america haggling is generally accepted for larger ticket items like automobiles jewelry and real estate but not for smaller day to day items like combs or a gallon of milk however in other regions around the world haggling for smaller items is generally accepted and is part of the culture in these regions children are taught to haggle at a young age to ensure that they are receiving the best perceived deal when making any type of purchase the acceptance of haggling can also be determined by location in department and grocery stores haggling is often expressly prohibited but at places like flea markets outdoor marketplaces and bazaars haggling is accepted and encouraged many consider haggling to be an art and a skill of persuasion rather than a rational economic activity to haggle is the same as to bargain or to informally negotiate special considerationsvarious economic theories have been proposed to explain the process of haggling the behavioral theory proposes that certain people have different personalities or dispositions toward negotiations rather than taking prices as they are given the game theory proposes solutions to bargaining problems as part of strategic action and can be interpreted as part of reaching a nash equilibrium haggling is also considered when considering retail pricing theory mainstream neoclassical economics however supposes that all market prices are jointly determined by supply and demand and so there would be no need for haggling since all prices would always reflect an equilibrium level | |
what is a haircut | in finance a haircut has two meanings a haircut is most commonly used when referencing the percentage difference between an asset s market value and the amount that can be used as collateral for a loan there is a difference between these values because market prices change over time and the lender factors this fluctuation into their valuation and analysis for risk mitigation for example if a person needs a 10 000 loan and wants to use their 10 000 stock portfolio as collateral the bank is more likely to recognize the 10 000 portfolio as worth only 5 000 in collateral the 5 000 or 50 reduction in the asset s value for collateral purposes is called the haircut should the person s stock portfolio decline in value they may still have sufficient collateral for the amount of debt issued the term haircut is less commonly used as the market maker s spread the term haircut is used since the market maker s spreads are so thin a market maker may trim a very small fee off of proceeds collected as part of providing liquidity in markets or facilitating trades investopedia jiaqi zhouunderstanding collateral haircuta haircut refers to the lower than market value placed on an asset being used as collateral for a loan the haircut is expressed as a percentage of the markdown between the two values when they are used as collateral securities are generally devalued since a cushion is required by the lending parties in case the market value falls | |
when collateral is being pledged the degree of the haircut is determined by the amount of associated risk to the lender these risks include any variables that may affect the value of the collateral in the event that the lender has to sell the security due to a loan default by the borrower variables that may influence that amount of a haircut include price volatility credit quality of the asset s issuer if applicable and liquidity risks of the collateral | determining haircut amountgenerally speaking price predictability and lower associated risks result in compressed haircuts as the lender has a high degree of certainty that the full amount of the loan can be covered if the collateral must be liquidated for example treasury bills are often used as collateral for overnight borrowing arrangements between government securities dealers which are referred to as repurchase agreements repos in these arrangements haircuts are negligible due to the high degree of certainty on the value credit quality and liquidity of the security securities that are characterized by volatility and price uncertainty have larger haircuts when used as collateral for example an investor seeking to borrow funds from a brokerage by posting equity positions to a margin account as collateral can only borrow 50 of the value of the account due to the lack of price predictability which is a haircut of 50 while a 50 haircut is standard for margin accounts a risk based haircut can be increased if the deposited securities pose liquidity or volatility risks for example the haircut on a portfolio of leveraged exchange traded funds etfs which are highly volatile may be as high as 90 penny stocks which pose potential price volatility and liquidity risks typically cannot be used as collateral in margin accounts different lenders will have different haircut valuations if you re not satisfied with how much value your collateral is being assigned consider evaluating the terms of other financial institutions haircut market maker spreadsa haircut is also sometimes referred to as the market maker s spread since market makers can transact with razor thin spreads and low transaction costs they can take small slivers or haircuts of profits or losses constantly throughout the day with advances in technology and markets becoming more efficient spreads in many assets have dropped to haircut levels retail traders can transact at the same spreads market makers do although retail traders costs are still higher which may make trading the spread ineffective in a stock both retail traders and market makers can buy and sell for a 0 01 spread in an active and liquid stock but buying and selling 500 shares to make 5 500 0 01 when each trade typically costs 5 to 10 varies by broker is not a profitable strategy for the retail trader long term capital management s ltcm failure and collateral haircuts exampleltcm was a hedge fund started in 1993 by 1998 it had amassed massive losses nearly resulting in a collapse of the financial system the basis of ltcm s profit model which worked very well for a while was to suck up small profits from market inefficiencies this is commonly called arbitrage the firm used historical models to highlight opportunities and then deployed capital to profit from them each opportunity typically only produced a small amount of profit so the firm utilized leverage or borrowed money in order to increase the gains the firm had 5 billion in assets yet controlled over 1 trillion worth of positions in the fall of 2018 14 banks and brokerage firms invested 3 6 billion in ltcm to prevent the imminent collapse of the hedge fund 1banks and other institutions allowed ltcm to borrow or leverage so much with little collateral mainly because they viewed the firm and their positions as non risky ultimately though the firm s model failed to predict inefficiencies accurately and those massively sized positions began to lose far more money than the firm actually had and more money than many of the banks and institutions that lent to them or allow them to purchase assets had the failure of ltcm which required a bailout of the financial system resulted in much higher haircut rules in terms of what can be posted as collateral and how much the haircut has to be ltcm had basically no haircuts yet today an average investor buying regular stocks is subject to a 50 haircut when using those stocks as collateral against the amount borrowed on a margin trading account market maker haircut examplein many markets the market maker s spread is the same as the retail trader s spread although the trading costs for the retail trader make trying to profit from a haircut spread ineffective one market where retail traders often cannot trade at the same spreads as the market makers is the forex market this is because forex brokers often mark up the spread which is how they make money in the eur usd forex pair the raw spread available to market makers is 0 00001 yet retail traders may be paying a spread of 0 00005 to 0 00015 or even higher a mark up of five to 15 times the raw spread forex brokers that provide raw spreads to their clients charge a commission on each trade they make their money off of trading fees instead of marking up the spread | |
what is the difference between a haircut and a margin | a haircut and a margin are effectively the same things both items determine the value of collateral that is often less than the full amount of the collateral or loan a haircut is often expressed as a reduction in the value of collateral for example a borrower may have received a 5 haircut on their 10 000 collateral this means the borrower s collateral was only valued at 9 500 alternatively margin is often stated as the collateral ratio or percentage of the purchase price imagine a borrower opens up a trading account with a 60 margin the borrower must deposit 10 000 to borrow 6 000 | |
what is haircut for risk | a haircut in finance is directly tied to risk a lender does not want to issue a loan for the true value of collateral because if the value of the assets decrease the lender will be at risk to not recover the net value of their issued debt to mitigate risk a lender will implement a haircut on the value of the collateral by having the true value of the collateral be higher than what the loan is actually issued for the lender can build in risk mitigation to ensure full recoverability | |
what is a haircut in debt restructuring | a haircut in debt restructuring is yet another unique use of the term haircut in finance specific to debt restructuring a haircut is the reduction of outstanding interest payments or a portion of a bond payable that will not be repaid this condition may arise when a company considers restructuring its debt and negotiates new terms with existing bondholders | |
what is haircut value | haircut value is the lower than market valuation placed on an asset when the asset is being used as collateral for a loan the haircut value is externally determined and the asset holder often does not have a say in the determination of the haircut value | |
what is half stock | a half stock is a security sold with a par value that is 50 of what is considered to be the standard price the par value refers to the face value of a bond or in some cases a stock half stock can be either common stock or preferred stock and other than the reduced par value acts as a regular share of stock half stock explainedthe valuation of a share of common stock is often the same for both a regular share of stock and half stock as much of the stock s value is related to growth potential par value is an important factor in determining the dividend of a share of stock making it more important for preferred stock additionally preferred stock may have a higher claim on the proceeds of a company that was liquidated a half stock share of preferred stock would potentially receive less in liquidation par value is more commonly a term used in bonds meaning the face value of a bond representing the principal amount that the lender or investor is lending to the borrower or issuer in terms of stock shares are also assigned a par value but the number is usually small and arbitrary such as 0 01 per share preferred stock is typically given a higher value because it is used to calculate dividends common stock versus preferred stockcommon stock and preferred stock have small however significant differences common stock is a security that represents ownership in a corporation holders of common stock elect the company s board of directors and vote on corporate policy but common shareholders are low on the ladder of priority in terms of ownership in the event of liquidation common shareholders have the right to a company s assets only after bondholders preferred shareholders and other debt holders have been paid in full preferred stock is a level of ownership in a corporation that has a higher claim on its assets and earnings than common stock with common stock there is no obligation for a company to offer dividends with preferred stock shareholders expect to receive dividends the promise of dividends is a selling feature intrinsic to the security preferred shares generally have a dividend that must be paid out before dividends to common shareholders and the shares usually do not carry voting rights preferred stock is far more uncommon than common stock examples of preferred stock include shares issued by bank of america bac and metlife met 1 2 real world examplea half stock has a par value that is typically half of what is considered normal so let s say the par value of e commerce company buysell s preferred stock is 100 however the company decides that it also wants to issue some half stock the half stock is still considered to be preferred stock and is still ranked higher on the priority ladder than common stock but because it is half stock it will pay out a lesser dividend to shareholders and give the owners fewer claims on assets should the company need to declare bankruptcy and liquidate buysell issues preferred stock with a par value of 50 making it half stock | |
what is the half year convention for depreciation | the half year convention for depreciation is the depreciation schedule that treats all property acquired during the year as being acquired exactly in the middle of the year this means that only half of the full year depreciation is allowed in the first year while the remaining balance is deducted in the final year of the depreciation schedule or the year that the property is sold the half year convention for depreciation can be applied to all forms of depreciation methods understanding the half year convention for depreciationas one of many u s generally accepted accounting principles gaap the matching principle seeks to match expenses to the period in which the related revenues were earned depreciation is an accounting convention that helps match expenses incurred by a fixed asset and the related revenues generated by that asset over its useful life an item is recorded on a company s books as a fixed asset at the time of purchase if it exceeds a capitalization threshold set by the company and will bring value to the company over a number of years rather than taking the full expense in the year of purchase depreciation allows a company to expense a portion of the cost of an asset in each of the years of the asset s useful life the company will then keep track of the book value of the asset by subtracting the accumulated depreciation from the asset s historical cost the half year convention for depreciation allows companies to better match revenues and expenses in the year that they are incurred by depreciating only half of the typical annual depreciation expense in year one if the asset is purchased in the middle of the year this applies to all forms of depreciation including straight line double declining balance and sum of the years digits there is also a mid quarter convention that must be used instead of the half year convention if at least 40 of the cost basis of all fixed assets acquired in a year were put in service sometime during the last three months of the year example of the half year conventionas an example assume a company purchases a 105 000 delivery truck with a salvage value of 5 000 and an expected life of 10 years the straight line method of depreciation expense is calculated by dividing the difference between the cost of the truck and the salvage value by the expected life of the truck in this example the calculation is 105 000 minus 5 000 divided by 10 years or 10 000 per year ordinarily the company would expense 10 000 in years one through 10 if the company purchases the truck in july rather than january however it is more accurate to use the half year convention to better align the cost of the equipment with the time period in which the truck provides value instead of depreciating the full 10 000 in year one the half year convention expenses half of the calculated depreciation expense or 5 000 in year one in years two through 10 the company expenses 10 000 and then in year 11 the company expenses the final 5 000 the half year convention extends the number of years that the asset is depreciated but the extension provides a more accurate matching of expenses to revenues | |
what assets can use the half year convention | the half year convention can be applied to all property except residential rental property nonresidential real property railroad gradings and tunnel bores unless the mid quarter convention applies 1 | |
when can i use the half year convention | the half year convention can be used if the mid quarter convention does not apply the mid quarter convention applies if the aggregate basis of property placed in service during the last three months of your tax year exceeds 40 of the aggregate basis of all property placed in service during the tax year 2for example assume you bought a machine for 2 000 and placed it in service in january a desk for 500 in april and a computer for 2 000 in november the computer placed in service during the last three months of the year exceeds 40 of the total basis of all property acquired during the year 2 000 2 000 500 2 000 44 4 therefore all three assets must use the mid quarter convention 3 | |
what forms of depreciation can use the half year convention | the half year convention can be used with any depreciation methods the internal revenue service irs modified accelerated cost recovery system macrs consists of two depreciation systems the general depreciation system gds and the alternative depreciation system ads which typically has to be elected by the taxpayer unless required by the irs macrs allows for three depreciation methods under gds and one under ads the 200 declining balance 150 declining balance and straight line methods can be used under gds but only the straight line method can be used under ads 3the bottom linethe half year convention for depreciation holds that assets purchased during the year will be treated as if they were purchased in the middle of the year for the purposes of depreciation sometimes the mid quarter convention will have to be used instead these conventions allow a company to better match revenues and expenses in the year in which they are incurred | |
what was the halloween massacre | the halloween massacre refers to a 2006 decision by the canadian government to tax all income trusts domiciled in the country on halloween oct 31 2006 canada s then minister of finance jim flaherty announced that all income trusts would be taxed at a rate of over 30 on taxable income just like corporations the decision caused unitholder value to decrease dramatically virtually overnight 1 income trusts were popular among canadian investors because of their favorable tax treatment understanding the halloween massacrecanadian income tax laws allowed income trusts to make distributions to unitholders on a pre tax basis this made them a favorable investment option for a lot of canadian investors in the early 2000s but that changed on oct 31 2006 when then finance minister jim flaherty announced changes to end the tax benefits for income trusts 2the change in canadian tax law to tax income trusts the same as corporations which was debated after the fact was made to remedy a perceived loss of tax revenue at the time there were about 250 trusts listed on the toronto stock exchange tsx with a market value of over 200 billion 3 many of these investments offered unitholders yields as high as 10 so it s no surprise that the government s move shocked investors leading to an immediate 12 drop in the value of the trusts 2in the years since the halloween massacre interest rates were low in canada and the united states as investors clamored for more yields like the kind that income trusts once provided as of 2023 income trusts were still available many of them real estate investment trusts reits 4these entities hold and maintain income producing real estate including office buildings shopping centers and hotels that canada still offers special tax treatment when income flows through to unitholders they don t pay much if any corporate tax and most of the distributions are taxed as ordinary income 5income trusts operating in the energy sector lost as much as 17 85 in value within the 10 days following the canadian government s announcement on oct 31 2006 6special considerationsa canadian income trust was an investment fund holding income producing assets and distributing payments to unitholders or shareholders on a regular basis distributions were usually made on a quarterly or monthly basis a canadian income trust was required to distribute a minimum of 90 of its net cash flows 7 both investors and trusts benefitted from the tax advantages of income trusts where u s investors who invest in canadian investments including reits should keep in mind that payments from these trusts are subject to a canadian withholding tax of 15 8 in some cases it s possible to claim a foreign tax credit depending on where the shares are held 9consequences of the halloween massacrecanada s change to the tax treatment of income trusts angered many investors that s because these investments earned higher yields when compared to other vehicles such as guaranteed investment certificates gics their value dropped significantly to the tune of 12 immediately after the announcement was made 2 an american couple even filed a nafta claim citing 6 5 million plus costs 1011the tsx lost 294 points when the government made the announcement as many investors pulled their money out of income trusts the tsx made a recovery shortly afterward recovering nearly all of the losses it experienced on halloween the rebound was largely due to investors putting their money into dividend paying stocks trusts had five years to convert to corporations many moved forward with the conversion while others became real estate investment trusts reits by the 2011 deadline 12 those that didn t make the move either went private or were acquired by other entities 2the canadian reit market was hit hard in the wake of the covid 19 pandemic the second quarter of 2020 brought the largest ever year over year yoy decline for quarterly earnings at minus 13 according to carolyn blair managing director of rbc capital markets real estate group as of the end of september 2020 canadian reits underperformed with a negative 20 return over the preceding 12 months the pandemic s effect on real estate including tenant insolvency empty storefronts reduced retail business closed shops restaurants and more was to blame 1314canadian reits were poised for recovery after the pandemic thanks to lower interest rates and higher operational efficiency investment activity and property demand have slowed down because of the rising rate environment revenue for the sector is expected to drop by 5 6 to 8 2 billion by 2023 15 | |
when did canada s halloween massacre take place | the halloween massacre took place on oct 31 2006 on this date the canadian government made an unexpected announcement that all income trusts domiciled in canada would be taxed like corporations | |
what was the impact of the halloween massacre | the announcement caused the value of canadian income trusts to immediately decline by 12 2 the canadian energy sector was impacted the most and lost approximately 17 85 in value during the 10 days that followed 6 | |
what was a canadian income trust | a canadian income trust was an investment fund that held income producing assets and distributed payments to unitholders on a periodic basis typically monthly or quarterly the trusts were required to distribute a minimum of 90 of net cash flows to shareholders 7the bottom lineincome trusts have survived the halloween massacre and the subsequent near death experience of the covid 19 pandemic while not as lucrative as in the past the sector is more than skeletal and very much alive | |
what is the halloween strategy | the halloween strategy is a market timing strategy it is based on the hypothesis that stocks perform better from oct 31 halloween to may 1 than the rest of the year the halloween strategy posits that it is prudent to buy stocks in november hold them through the winter months and sell them in april while investing in other asset classes from may through october understanding the halloween strategyas noted above the halloween strategy aims to capitalize on gains by timing the stock market it refers to a tactic where investors buy stocks in november and sell them in april investors who subscribe to this theory typically choose defensive stocks and assets after they ve sold their stocks which is during the summer months the idea that investors can time the market is contrary to the buy and hold strategy in which an investor may ride out down months and invest for the longer term the superior results seem to contradict the premise of the efficient market hypothesis and that stocks behave in a completely random manner this strategy is closely related to the oft repeated advice to sell in may and go away some variation of this strategy has been around for quite a long time the axiom that was often coined in financial media was also repeated over the last two centuries and its longer version was some variation of these words sell in may go away come again st leger day the halloween strategy is also referred to as the halloween effect or halloween indicator special considerationsmany believe that the notion of abandoning stocks every may began in the united kingdom where the privileged class would leave london and head to their country estates for the summer largely ignoring their investment portfolios only to return in september those who subscribe to this notion would likely expect that it is common for salesmen traders brokers equity analysts and others in the investment community to leave their metropolitan financial centers in summer in favor of oases like the hamptons in new york nantucket in massachusetts and their equivalents elsewhere sven bouman and ben jacobsen published a paper in the american economic review that specifically studied the performance of stocks during the period from november to april and dubbed this the halloween indicator in their observation an investor who uses the halloween strategy to be fully invested for one six month period and out of the market for the other six months of the year would theoretically reap the best part of an annual return but with just half the exposure of someone who invests in stocks year round 1some who subscribe to the halloween strategy advise investors not to invest at all during the summer months halloween strategy performancethe halloween strategy does have evidence worthy of consideration historical stock returns suggest that the premise of the halloween strategy has been mostly true that the months from november through april have provided investors with stronger capital gains than have the other months of the year results also show that selling in may is successful in beating the market more than 80 of the time when this strategy is used over a five year horizon it is more than 90 successful in beating the market when used within a 10 year time frame 2the graph below displays the halloween effect for u s stocks for the comparable periods from 1970 to 2017 and 1991 to 2017 it indicates that the return on the standard poor s 500 s p 500 is much higher from november through april than it is from may through october | |
what causes the halloween effect | no one can conclusively identify a reason for this seasonal anomaly while many market watchers believe that the summer vacations of investment professionals impact market liquidity or that investors aversion to risk during the summer months is at least partly responsible for the difference in seasonal returns these notions assume that increased participation means increased gains but market crashes and similar investing disasters are attended by the highest levels in terms of volume and participation therefore the assumption of increased participation may have some correlation with gains but it is not likely to cause the gains proximity to trading resources is not likely to be an explanation either as electronic trading allows investors all around the world to participate as easily from the beach as from the boardroom there is no dearth of theories to support whatever one wants to believe about the halloween strategy for as many different opinions as there are about the halloween effect there is an equal number of theories to support those opinions the halloween strategy is fascinating for the very reason that it is both an empirical anomaly and a mystery | |
does spending money on halloween have an effect on the economy | yes according to the national retail federation americans planned to spend 12 2 billion on halloween in 2023 this is an increase of 69 from the previous year 3 the organization expected spending to reach 108 24 per individual in 2023 across various segments like costumes candy decorations and party supplies 4 | |
is the halloween effect real | some variation of the halloween strategy has been around and in use by investors for a long time there is also some variation of the theory in another related investment strategy sell in may go away come again st leger day | |
does the halloween investing strategy outperform buy and hold | historical stock returns suggest that using the halloween strategy has provided investors with stronger capital gains than other months of the year selling in may is also considered an effective strategy providing gains more than 80 of the time over five years and 90 of the time over 10 years the bottom linethe halloween strategy suggests that investors should buy stocks in november and hold them until april when it s time to sell them off although research shows that there is some truth to the theory investors should remember that it s just that a theory whether you call it the halloween strategy halloween effect or halloween indicator do your due diligence and research before adopting any investment strategy | |
what is the halo effect | the halo effect is a term for a consumer s favoritism toward a line of products due to positive experiences with other products by this maker the halo effect is correlated to brand strength brand loyalty and contributes to brand equity the opposite of the halo effect is the horn effect named for the horns of the devil when consumers have an unfavorable experience they correlate that negative experience with everything associated with a brand | |
how the halo effect works | companies create the halo effect by capitalizing on their existing strengths with the concentration of marketing efforts on high performing successful products and services the firm s visibility increases and reputation and brand equity strengthens | |
when consumers have positive experiences with products of highly visible brands they cognitively form a brand loyalty bias in favor of the brand and its offerings this belief is independent of a consumer s experience the reasoning is that if a company is exceptionally good at one thing it will undoubtedly be good at something else this assumption will take a brand far parlaying into other new products | the halo effect increases brand loyalty strengthens the brand image and reputation and translates into high brand equity companies use the halo effect to establish themselves as leaders in their industries when one product positively imprints in the minds of consumers the success of that product infectiously affects other products ultimately businesses can gain market share and increase profits thanks to the halo effect even protecting consumers from purchasing from competitors if they have an all star product companies benefit from the halo effect by capitalizing on their existing strengths history of the halo effectthe concept of the halo effect can be traced back to 1920 when american psychologist edward l thorndike first used it to describe his observations of military officers who had to rank their subordinates without even communicating with the lower ranked military men many of the superiors automatically assumed that physically attractive men were smarter more capable and had more leadership qualities than the other men in thorndike s paper the constant error in psychological ratings he noted that one impression can create a halo effect that they are more likely to prescribe to an individual s other qualities as well 1special considerationsit isn t easy for a company to achieve brand loyalty and build a halo effect for their wider set of products or services after all this can be somewhat of an elusive gold standard that only a number of household brands name possess however companies that focus on making their products cult products or achieve cult status are more likely to benefit from the halo effect on subsequent products they release often these companies funnel all their efforts into one superior product and become known for it before then expanding to other kinds of products an easy way to take advantage of the halo effect is by hiring a celebrity ambassador to promote a product when an endorsement from a popular celebrity for example george clooney is secured their positive image can be lent to the brand or product and looked upon favorably if george clooney endorsed it it must be good of course traditional ways of achieving the brand halo effect can be achieved through developing a curated social media presence to improve a brand s external image reach and visibility as well as focusing on the product and user experience itself can all help a brand develop a halo effect advantages and disadvantages of the halo effectthe halo effect can be a double edged sword if a brand has an extremely positive perception this can extend into its new products and boost customer retention and loyalty however a halo effect doesn t make a brand untouchable either have one bad experience with a brand and consumers will swear it off altogether the well known marketing case of classic coke vs new coke is an example of how tinkering with a beloved halo brand can turn disastrous despite being a cult product coca cola thought that it needed to rebrand its classic product in 1985 by releasing new coke to taste sweeter and more like pepsi then beginning to close the gap as coca cola s nearest competitor although the sweeter new coke formula had been proven by data in blind taste tests the company underestimated the emotional attachment that loyal coke drinkers had to the original formula they were enraged and quickly coca cola announced that it would revert back to its original formula the halo effect and brand image of coca cola were put at risk with the introduction of the new formula showing that a halo effect must also be intentionally maintained halo effects create strong brand loyalty and consumer retentionconsumers are willing to pay more money for a brand they already know and trustsubsequent new products by a brand will benefit from the brand s halo effectthe halo effect can extend negative impressions too known as the horn effect maintaining a brand s halo effect can also be challengingbrand image can be a make it or break it factor in a product s success making the halo effect a more elusive factor to controlexample of the halo effectthe halo effect applies to a broad range of categories including people organizations ideas and brands for example apple aapl benefits significantly from the halo effect with the release of the ipod there was market speculation that the sales of apple s mac laptops would also increase due to the success of the ipod figuratively a halo forms and extends over the brand it effectively allows for the expansion of product offerings for example apple s ipod success allowed for the development of other consumer products such as the apple watch iphone and ipad if the following product pales in comparison to the leading product the success of the leading product will help to compensate for the failure rather than leading to a total shift in brand perception this brand extension helps brands like apple to remain a beloved technology giant even despite other failures for example to date very few people remember the company s flops airpower or the apple newton this phenomenon of one product favorably impacting another such as is the case with apple is considered a near perfect example of the halo effect the ipod buyers just kept coming back and consequently iphone sales have been steady continuing the cycle the bottom linethe halo effect when achieved can be one of the most powerful assets to a brand as it increases brand strength brand loyalty and increases brand equity ultimately achieving this cult status is no easy feat | |
what is the hamada equation | the hamada equation is a fundamental analysis method of analyzing a firm s cost of capital as it uses additional financial leverage and how that relates to the overall riskiness of the firm the measure is used to summarize the effects this type of leverage has on a firm s cost of capital over and above the cost of capital as if the firm had no debt known as the unlevered cost of capital | |
how the hamada equation works | robert hamada is a former professor of finance at the university of chicago booth school of business hamada started teaching at the university in 1966 and served as the dean of the business school from 1993 to 2001 his equation appeared in his paper the effect of the firm s capital structure on the systemic risk of common stocks in the journal of finance in may 1972 the formula for the hamada equation is l u 1 1 t d e where l levered beta u unlevered beta t tax rate d e debt to equity ratio begin aligned beta l beta u left 1 1 t left frac d e right right textbf where beta l text levered beta beta u text unlevered beta t text tax rate d e text debt to equity ratio end aligned l u 1 1 t ed where l levered beta u unlevered beta t tax rated e debt to equity ratio unlevered beta is the market risk of a company without the impact of debt debt to equity ratio is a measure of a company s financial leverage | |
how to calculate the hamada equation | the hamada equation is calculated by | |
what does the hamada equation tell you | the equation draws upon the modigliani miller theorem on capital structure and extends an analysis to quantify the effect of financial leverage on a firm beta is a measure of volatility or systemic risk relative to the overall market the hamada equation then shows how the beta of a firm changes with leverage the higher the beta coefficient the higher the risk associated with the firm example of the hamada equationa firm has a debt to equity ratio of 0 60 a tax rate of 33 and an unlevered beta of 0 75 the hamada coefficient would be 0 75 1 1 0 33 0 60 or 1 05 this means that financial leverage for this firm increases the overall risk by a beta amount of 0 30 which is 1 05 less 0 75 or 40 0 3 0 75 or consider retailer target nyse tgt which has a current unlevered beta of 0 82 its debt to equity ratio is 1 05 and the effective annual tax rate is 20 thus the hamada coefficient is 0 99 or 0 82 1 1 0 2 0 26 thus leverage for a firm increases the beta amount by 0 17 or 21 the difference between hamada equation and weighted average cost of capital wacc the hamada equation is part of the weighted average cost of capital wacc the wacc involves unlevering the beta to relever it to find an ideal capital structure the act of relevering the beta is the hamada equation limitations of using the hamada equationthe hamada equation is used in finding optimal capital structures yet the equation doesn t include default risk while there have been modifications to account for such a risk they still lack a robust way to incorporate credit spreads and the risk of default to gain a better understanding of how to use the hamada equation it s useful to understand what the beta is and how to calculate it | |
what is a hammer candlestick | a hammer is a price pattern in candlestick charting that occurs when a security trades significantly lower than its opening but rallies within the period to close near the opening price this pattern forms a hammer shaped candlestick in which the lower shadow is at least twice the size of the real body the body of the candlestick represents the difference between the opening and closing prices while the shadow shows the high and low prices for the period mira norian investopediaunderstanding hammer candlesticksa hammer occurs after the price of a security has been declining suggesting that the market is attempting to determine a bottom hammers signal a potential capitulation by sellers to form a bottom accompanied by a price rise to indicate a potential reversal in price direction this happens all during a single period where the price falls after the opening but regroups to close near the opening price a hammer should look similar to a t this indicates the potential for a hammer candle a hammer candlestick does not indicate a price reversal to the upside until it is confirmed confirmation occurs if the candle following the hammer closes above the closing price of the hammer ideally this confirmation candle shows strong buying candlestick traders will typically look to enter long positions or exit short positions during or after the confirmation candle for those taking new long positions a stop loss can be placed below the low of the hammer s shadow hammers aren t usually used in isolation even with confirmation traders typically utilize price or trend analysis or technical indicators to further confirm candlestick patterns hammers occur on all time frames including one minute charts daily charts and weekly charts example of how to use a hammer candlestickthe chart shows a price decline followed by a hammer pattern this pattern had a long lower shadow several times longer than the real body the hammer signaled a possible price reversal to the upside confirmation came on the next candle which gapped higher and then saw the price get bid up to a close well above the closing price of the hammer traders usually step in to buy during the confirmation candle a stop loss is placed below the low of the hammer or even potentially just below the hammer s real body if the price is moving aggressively higher during the confirmation candle the difference between a hammer candlestick and a dojia doji is another type of candlestick with a small real body a doji signifies indecision because it is has both an upper and a lower shadow dojis may signal a price reversal or a trend continuation depending on the confirmation that follows this differs from the hammer which occurs after a price decline signals a potential upside reversal if followed by confirmation and only has a long lower shadow limitations of using hammer candlesticksthere is no assurance that the price will continue to move to the upside following the confirmation candle a long shadowed hammer and a strong confirmation candle may push the price quite high within two periods this may not be an ideal spot to buy as the stop loss may be a great distance away from the entry point exposing the trader to risk that doesn t justify the potential reward hammers also don t provide a price target so figuring what the reward potential for a hammer trade is can be difficult exits need to be based on other types of candlestick patterns or analysis psychology of the hammeras we have seen an actionable hammer pattern generally emerges in the context of a downtrend or when the chart is showing a sequence of lower highs and lower lows the appearance of the hammer suggests that more bullish investors are taking positions in the stock and that a reversal in the downward price movement may be imminent the long lower shadow on the hammer candlestick indicates an effort to continue the price s downward trajectory but the higher close represented by the real body indicates that the sellers were ultimately unsuccessful in holding the price at its intraday low the price s ascent from its session low to a higher close suggests that a more bullish outlook won the day setting the stage for a potential reversal to the upside practical applicationif you ve spotted a hammer candlestick on a price chart you may be eager to make a trade and profit from the potential upcoming price movement before you place your order let s take a look at a few practical considerations that can help you make the most of a trade based on the hammer pattern the first step is to ensure that what you re seeing on the candlestick chart does in fact correspond with a hammer pattern if you re looking for hammer signal that implies a potential upside reversal it should occur in the context of a downtrend or declining price action marked by a series of lower highs and lower lows under these circumstances the signal you re keeping an eye out for is a hammer shaped candlestick with a lower shadow that is at least twice the size of the real body the closing price may be slightly above or below the opening price although the close should be near the open meaning that the candlestick s real body remains small confirmation of a hammer signal occurs when subsequent price action corroborates the expectation of a trend reversal in other words the candlestick following the hammer signal should confirm the upward price move traders who are hoping to profit from a hammer signal often buy during the formation of this upward confirmation candle as with any trade it is advisable to use stops to protect your position in case the hammer signal does not play out in the way that you expect the level at which you set your stop will depend on your confidence in the trade and your risk tolerance however it may be useful to set a stop loss below the low of the hammer pattern providing protection in case the downward pressure reemerges and the upward move that you were anticipating never materializes on the other hand if the price does begin to rise rewarding your recognition of the hammer signal you will have to decide on an optimal level to exit the trade and take your profits on its own the hammer signal provides little guidance as to where you should set your take profit order as you strategize on a potential exit point you may want to look for other resistance levels such as nearby swing lows | |
what is a hammer candlestick | a hammer candlestick is a technical trading pattern that resembles a t whereby the price trend of a security will fall below its opening price illustrating a long lower shadow and then consequently reverse and close near its opening hammer candlestick patterns occur after a downtrend they are often considered signals for a reversal pattern | |
is a hammer candlestick pattern bullish | the hammer candlestick is a bullish trading pattern that may indicate that a stock has reached its bottom and is positioned for trend reversal specifically it indicates that sellers entered the market pushing the price down but were later outnumbered by buyers who drove the asset price up importantly the upside price reversal must be confirmed which means that the next candle must close above the hammer s previous closing price | |
what is the difference between a hammer candlestick and a shooting star | while a hammer candlestick pattern signals a bullish reversal a shooting star pattern indicates a bearish price trend shooting star patterns occur after a stock uptrend illustrating an upper shadow essentially the opposite of a hammer candlestick the shooting star rises after opening but closes roughly at the same level of the trading period a shooting star pattern signals the top of a price trend the bottom linea hammer candlestick pattern occurs when a security trades significantly lower than its opening but then rallies to close near its opening price the hammer shaped candlestick that appears on the chart has a lower shadow at least twice the size of the real body the pattern suggests that sellers have attempted to push the price lower but buyers have eventually regained control and returned the price near its opening level the pattern indicates a potential price reversal to the upside | |
what is a hammer clause | a hammer clause is an insurance policy clause that allows an insurer to compel the insured to settle a claim a hammer clause is also known as a blackmail clause settlement cap provision or consent to settlement provision this clause gets its name from the power given to the insurer to force the insured to settle much as how a hammer is used against a nail |
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