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what is the difference between an investment manager and a fund manager | investment managers focus primarily on individual securities and bond investments while fund managers work with mutual funds comprised of multiple securities and assets often tailored to a particular market sector the bottom lineinvestment managers are individuals or organizations who advise clients through financial planning investing and portfolio management they commonly hold undergraduate degrees in finance mathematics or accounting and may have advanced degrees or professional certifications and their fee is often calculated as a percentage of the portfolios they manage an investment manager is a type of investment adviser an individual or company who is paid for providing advice about securities to their clients and is regulated by the securities and exchange commission | |
what is the investment multiplier | the term investment multiplier refers to the concept that any increase in public or private investment spending has a more than proportionate positive impact on aggregate income and the general economy it is rooted in the economic theories of john maynard keynes the multiplier attempts to quantify the additional effects of investment spending beyond those immediately measurable the larger an investment s multiplier the more efficient it is in creating and distributing wealth throughout the economy 1understanding the investment multiplierthe investment multiplier tries to determine the economic impact of public or private investment for instance extra government spending on roads can increase the income of construction workers as well as the income of materials suppliers these people may spend the extra income in the retail consumer goods or service industries boosting the income of workers in those sectors 1as you can see this cycle can repeat itself through several iterations what began as an investment in roads quickly multiplied into an economic stimulus benefiting workers across a wide range of industries mathematically the investment multiplier is a function of two main factors the marginal propensity to consume mpc and the marginal propensity to save mps john maynard keynes was among the first economists to illustrate how governments can use multipliers such as the investment multiplier to stimulate economic growth through spending 1 | |
what is an investment objective | an investment objective is used by asset managers to determine the optimal portfolio mix for a client investments are chosen using the guidelines of the investment objective an investor questionnaire often defines financial goals and objectives and determines the asset allocation within the portfolio based on an individual s time horizon risk tolerance and financial situation understanding an investment objectivecommonly based on one of four strategies that include income growth and income growth or trading an individual s investment objective clarifies investment ideas to help achieve an individual s financial goals the information that an individual provides to determine their investment objective may include annual income and net worth average annual expenses timeline to withdraw the money and the maximum decrease in the value of the portfolio with which the investor is comfortable the portfolio is tailored according to the answers provided to these questions and a strategy is defined as an investment objective risk tolerance is the degree of risk that an investor is willing to endure given the volatility in the value of an investment a client with a high risk tolerance interested in growth may have a short term aggressive portfolio which includes stocks and trading opportunities a moderate risk investor may have a balanced portfolio of growth and income instruments that may include stocks and bonds a conservative investor with low risk tolerance may focus on an income generating portfolio using dividends and bonds | |
what factors influence an individual s investment objective | in addition to an individual s time horizon and risk profile other factors that influence an individual s investment decisions include income capital gains tax dividends tax commission and fees for actively managed portfolios and total wealth which may include assets like social security benefits expected inheritance and pension value | |
where can an investor find an investment objective questionnaire | investors can find various free questionnaires online at brokerage sites however when choosing not to use a personal advisor it is important to review the questionnaire s assumptions and limitations and accept the firm s terms and conditions an investment objective will typically not be formally completed until a client has decided to use the services of the financial planner or advisor since the information that will be provided is highly sensitive can an investment objective change as financial circumstances or goals change it may be helpful for an investor to complete an investment objective questionnaire again and reallocate the investments in a portfolio | |
what is an investment policy statement ips | an investment policy statement ips is a document drafted between a portfolio manager and a client that outlines general rules for the manager this statement provides the general investment goals and objectives of a client and describes the strategies that the manager should employ to meet these objectives specific information on matters such as asset allocation risk tolerance and liquidity requirements are included in an investment policy statement it s standard practice for portfolio managers to have an ips in place for their institutional clients such as retirement plan sponsors and mutual funds many financial advisors will also draft one for their individual clients as well understanding an investment policy statement ips investment policy statements are frequently though not always used by investment advisors and financial advisors to document an investment plan with a client it provides guidance for informed decision making and serves as both a roadmap to successful investing and a bulwark against potential mistakes or misdeeds an ips lists the investor s investment objectives along with their time horizon for example an individual may have an ips stating that by the time they are 60 years old they want to have the option to retire and their portfolio will annually return 65 000 in today s dollars given a certain rate of inflation a well conceived ips also delineates asset allocation targets as well for instance it specifies the target allocation between stocks and bonds further breaking down the target allocation into sub asset classes such as global securities by region the targets should then have a minimum and maximum deviation that when exceeded will trigger portfolio rebalancing an ips should give special attention to describing the investor s risk return profile that includes naming asset classes that should be avoided and those that are preferred additional information to includein addition to specifying the investor s goals priorities and investment preferences a well conceived ips establishes a systematic review process that enables the investor to stay focused on the long term objectives even if the market gyrates wildly in the short term it should contain all current account information current allocation how much has been accumulated and how much is currently being invested in various accounts the ips should include monitoring and control procedures to be followed by everyone involved in the investment process this includes establishing the frequency of monitoring specifying benchmarks for comparison of portfolio returns and concrete procedures for making any future changes to the ips serious investors think through the possible reasons for changing their ips such as financial or lifestyle changes more importantly they specify the reasons not to change their ips i e short term market performance finally a comprehensive ips containing actionable provisions that are intended to be followed can help advisors dissuade clients who want to drastically and potentially harmfully change direction with their portfolios when markets start to falter example of an investment policy statementnapa valley wealth management an investment advisory firm located in walnut creek and saint helena ca prepares investment policy statements for individual clients that might run about a dozen pages your ips helps ensure we re both on the same page and it serves as a roadmap for ongoing investment decisions about your portfolio the document s introduction reads 1a napa valley ips then summarizes the client s investment policy in a table 2 | |
what are the components of an investment policy statement | different investment policy statements will have different components but generally they seek to address the scope of the investment the governance the investment s rate of return and time frame risk risk management and taxes | |
what is the purpose of an investment policy statement | the purpose of an investment policy statement is to detail how an investment portfolio will be built managed and assessed its goal is to align both the investor and the investment manager regarding all aspects of the investment process | |
do you need an investment policy statement | if you are working with an investment management firm it is most likely that an investment policy statement will be provided to you if you work for or own an investment management firm it is good practice to offer your clients an investment policy statement this helps to ensure that all parties in the investment process are on the same page and understand the goals and risks involved the bottom linean investment policy statement essentially acts as a business plan for your portfolio developing a solid ips is not a typical exercise for most investors it requires a lot of thought it also requires an understanding of how the market works as well as familiarity with investment principles and practices | |
what is an investment product | an investment product is a product offered to investors based on an underlying security or group of securities that is purchased with the expectation of earning a favorable return investment products are based on a wide range of underlying securities and encompass a broad range of investment objectives understanding investment productsinvestment product is the umbrella term for all the stocks bonds options derivatives and other financial instruments that people put money into in hopes of earning profits the types of investment products available for individual and institutional investors can differ significantly but the basic profit motive is behind all of them a wide range of investment products exist within the investment universe to help investors meet short term and long term investment goals overall investors purchase investment products for their capital appreciation potential and income paying distributions capital appreciation and income distribution are two standard classifications for investment products some investment products are purchased by an investor primarily for their potential to increase or appreciate in value over time given specified growth factors other investment products may have an additional income paying component fixed income investments such as bonds and commingled bond funds offer investors the opportunity to purchase an asset that may increase in value while also paying out fixed interest payments or capital distributions other income paying investment products include dividend paying equities real estate investment trusts and master limited partnerships modern portfolio theory suggests that an investor has a diversified portfolio of investments including a variety of investment products to obtain an optimal risk return reward for their investments investment product exampleswithin the investment market investment products can be structured in various ways thus investors have a wide variety of options in addition to buying an investment product focused on the movement of a single security structured investment products can include mutual funds exchange traded funds money market funds annuities and more in the u s and globally investment products are highly regulated requiring substantial documentation to provide investors with a detailed understanding of investment products for which they may choose to invest below are some basic examples of investment products offered in the investment universe stocksstock investments represent equity ownership in a publicly traded company companies issue stock as part of a capital raising regime which funds the operations of the company stock investments have varying growth prospects and are typically analyzed based on characteristics such as estimated future earnings and price to earnings ratios stocks can be classified in various categories and may also offer dividends adding an income payout component to the investment bondsbonds are one of the most well known fixed income investment products they can be offered by governments or corporations looking to raise capital bonds pay investors interest in the form of coupon payments and offer full principal repayment at maturity investors can also invest in bond funds which include a portfolio of bonds managed by a portfolio manager for various objectives bonds and bond funds are typically classified by a credit rating which offers insight on their capital structure and ability to make timely payments derivativesderivatives are investment products that are offered based on the movement of a specified underlying asset put or call options on stocks and futures based on the movement of commodities prices are a few of the market s leading derivative investment products there are also futures and customized investment products that allow investors to speculate on price movements or move risk between parties derivatives are complex investment products so a certain level of market knowledge and experience is required | |
what is an investment property | an investment property is real estate property purchased with the intention of earning a return on the investment either through rental income the future resale of the property or both the property may be held by an individual investor a group of investors or a corporation an investment property can be a long term endeavor or a short term investment with the latter investors will often engage in flipping where real estate is bought remodeled or renovated and sold at a profit within a short time frame the term investment property may also be used to describe other assets an investor purchases for the sake of future appreciation such as art securities land or other collectibles understanding investment propertiesinvestment properties are those that are not used as a primary residence they generate some form of income dividends interest rents or even royalties that fall outside the scope of the property owner s regular line of business and the way in which an investment property is used has a significant impact on its value investment properties generate income and are not primary residences investors sometimes conduct studies to determine the best and most profitable use of a property this is often referred to as the property s highest and best use for example if an investment property is zoned for both commercial and residential use the investor weighs the pros and cons of both until they ascertain which has the highest potential rate of return they then utilize the property in that manner an investment property is often referred to as a second home but the two don t necessarily mean the same thing for instance a family may purchase a cottage or other vacation property to use themselves or someone with a primary home in the city may purchase a second property in the country or in another state as a retreat for weekends in these cases the second property is for personal use not as an income property types of investment propertiesrental homes are a popular way for investors to supplement their income an investor who purchases a residential property and rents it out to tenants can collect monthly rents these can be single family homes condominiums apartments townhomes or other types of residential structures income generating properties don t always have to be residential some investors especially corporations purchase commercial properties that are used specifically for business purposes maintenance and improvements to these properties can be higher but these costs can be offset by bigger returns that s because the leases for these properties often command higher rents these buildings may be commercially owned apartment buildings or retail store locations a mixed use property can be used simultaneously for both commercial and residential purposes for instance a building may have a retail storefront on the main floor such as a convenience store bar or restaurant while the upper portion of the structure houses residential units financing investment propertieswhile borrowers who secure a loan for their primary residence have access to an array of financing options including fha loans va loans and conventional loans it can be more challenging to procure financing for an investment property insurers do not provide mortgage insurance for investment properties and as a result borrowers need to have at least 20 down to secure bank financing for investment properties banks also insist on good credit scores and relatively low loan to value ratios before approving a borrower for an investment property mortgage some lenders also require the borrower to have ample savings to cover at least six months worth of expenses on the investment property thereby ensuring the mortgage and other obligations will be kept up to date tax implicationsif an investor collects rent from an investment property the internal revenue service irs requires them to report the rent as income but the agency also allows them to subtract relevant expenses from this amount for example if a landlord collects 100 000 in rent over the course of a year but pays 20 000 in repairs lawn maintenance and related expenses they report the difference of 80 000 as self employment income if an individual sells an investment property for more than the original purchase price they have a capital gain which must be reported to the irs for 2021 and 2022 capital gains tax rates are either 0 15 or 20 for most assets that are being held for over a year 1in contrast if a taxpayer sells their primary residence they only have to report capital gains tax on a home sale in excess of 250 000 if they file individually and 500 000 if they are married and filing jointly the capital gain on an investment property is its selling price minus its purchase price minus any major improvements 2to illustrate imagine an investor buys a property for 100 000 and spends 20 000 installing new plumbing a few years later they sell the property for 200 000 after subtracting their initial investment and capital repairs their gain is 80 000 | |
what are investment securities | investment securities are a category of securities tradable financial assets such as equities or fixed income instruments that are purchased with the intention of holding them for investment as opposed to investment securities in general securities are purchased by a broker dealer or other intermediary for quick resale investment securities are subject to governance via article 8 of the uniform commercial code ucc understanding investment securitiesbanks often purchase marketable securities to hold in their portfolios these are usually one of two main sources of revenue along with loans investment securities can be found on the balance sheet assets of many banks carried at amortized book value defined as the original cost less amortization until the present date the main difference between loans and investment securities is that loans are generally acquired through a process of direct negotiation between the borrower and lender while the acquisition of investment securities is typically through a third party broker or dealer investment securities at banks are subject to capital restrictions for example the number of type ii securities or securities issued by a state government is restricted to 10 of the bank s overall capital and surplus investment securities provide banks with the advantage of liquidity in addition to the profits from realized capital gains when these are sold if they are investment grade these investment securities are often able to help banks meet their pledge requirements for government deposits in this instance investment securities can be viewed as collateral types of investment securitiesas with all securities investment securities held by banks as collateral can take the form of equity ownership stakes in corporations or debt securities equity stakes can be in the form of preferred or common shares although it is critical that they provide a measure of safety in this case high risk high reward securities such as initial public offering ipo allocations or small gap growth companies might not be appropriate for investment securities some companies offer dual class stock which provide distinct voting rights and dividend payments debt securities can take the common forms of secured or unsecured corporate debentures secured corporate debentures can be backed by company assets such as a mortgage or company equipment in this scenario secured debt also called investment grade would be preferred treasury bonds or treasury bills and municipal bonds state county municipal issues are also options for a bank s investment securities portfolio again these bonds should be investment grade while securities in general include derivative securities such as mortgage backed securities whose value is derived from the asset s underlying the financial instrument these are higher risk and not often encouraged to be part of a bank s investment securities portfolio other types of investment securities can include money market securities for quick conversion to cash these generally take the form of commercial paper unsecured short term corporate debt that matures in 270 days or less repurchase agreements negotiable certificates of deposit cds bankers acceptances and or federal funds | |
what is an investment strategy | the term investment strategy refers to a set of principles designed to help an individual investor achieve their financial and investment goals this plan is what guides an investor s decisions based on goals risk tolerance and future needs for capital 1 they can vary from conservative where they follow a low risk strategy where the focus is on wealth protection while others are highly aggressive seeking rapid growth by focusing on capital appreciation 2investors can use their strategies to formulate their own portfolios or do so through a financial professional strategies aren t static which means they need to be reviewed periodically as circumstances change 3understanding investment strategiesinvestment strategies are styles of investing that help individuals meet their short and long term goals strategies depend on a variety of factors including this of course isn t an exhaustive list and may include other details about the individual these factors help an investor determine the kind of investments they choose to purchase including stocks bonds money market funds real estate asset allocation and how much risk they can tolerate 5investment strategies vary greatly there isn t a one size fits all approach to investing which means there isn t one particular plan that works for everyone this also means that people need to reevaluate and realign their strategies as they get older in order to adapt their portfolios to their situation investors can choose from value investing to growth investing and conservative to more risky approaches as mentioned above people can choose to make their investment decisions on their own or by using a financial professional more experienced investors are able to make decisions and investment choices on their own keep in mind that there is no right way to manage a portfolio but investors should behave rationally by doing their own research using facts and data to back up decisions by attempting to reduce risk and maintain sufficient liquidity 1because investment strategies depend so heavily on your personal situation and goals it s important for you to do your research before you commit your capital to any investment special considerationsrisk is a huge component of an investment strategy some individuals have a high tolerance for risk while other investors are risk averse 5 here are a few common risk related rules for example u s treasury bonds bills and certificates of deposit cds are considered safe because they are backed by the credit of the united states however these investments provide a low return on investment once the cost of inflation and taxes have been included in the return on income equation there may be little growth in the investment along with risk investors should also consider changing their investment strategies over time 6 for instance a young investor saving for retirement may want to alter their investment strategy when they get older shifting their choices from riskier investments to safer options types of investment strategiesinvestment strategies range from conservative plans to highly aggressive ones a review of some of the top investors will show that there are a wide variety of strategies to consider conservative investment plans employ safe investments that come with low risks and provide stable returns highly aggressive ones are those that involve risky investments such as stocks options and junk bonds with the goal of generating maximum returns 2people who have a greater investment horizon tend to employ aggressive plans because they have a longer timeline while those who want to preserve capital are more likely to take a conservative approach 7many investors buy low cost diversified index funds use dollar cost averaging and reinvest dividends dollar cost averaging is an investment strategy where a fixed dollar amount of stocks or a particular investment are acquired on a regular schedule regardless of the cost or share price some experienced investors though select individual stocks and build a portfolio based on individual firm analysis with predictions on share price movements some investors may choose strategies such as value and growth investing with value investing an investor chooses stocks that look as they though trade for less than their intrinsic value this means that these stocks that the market is underestimating growth investing on the other hand involves investing capital in the stocks of junior companies that have the potential for earnings growth example of investment strategya 25 year old who starts off their career and begins saving for retirement may consider riskier investments because they have more time to invest and are more tolerant to risk they can also afford to lose some money in the event that the market takes a dive because they still have time earn more money this means they can invest in things like stocks and real estate a 45 year old on the other hand doesn t have a lot of time to put money away for retirement and would be better off with a conservative plan they may consider investing in things like bonds government securities and other safe bets meanwhile someone saving for a vacation or home won t have the same strategy as someone saving for retirement they may be better off putting their money away in a savings account or a cd for short term goals like these | |
what is an investment strategy | the term investment strategy refers to a set of principles designed to help an individual investor achieve their financial and investment goals this plan is what guides an investor s decisions based on goals risk tolerance and future needs for capital 1 they can vary from conservative where they follow a low risk strategy where the focus is on wealth protection while others are highly aggressive seeking rapid growth by focusing on capital appreciation 2investors can use their strategies to formulate their own portfolios or do so through a financial professional strategies aren t static which means they need to be reviewed periodically as circumstances change 3understanding investment strategiesinvestment strategies are styles of investing that help individuals meet their short and long term goals strategies depend on a variety of factors including this of course isn t an exhaustive list and may include other details about the individual these factors help an investor determine the kind of investments they choose to purchase including stocks bonds money market funds real estate asset allocation and how much risk they can tolerate 5investment strategies vary greatly there isn t a one size fits all approach to investing which means there isn t one particular plan that works for everyone this also means that people need to reevaluate and realign their strategies as they get older in order to adapt their portfolios to their situation investors can choose from value investing to growth investing and conservative to more risky approaches as mentioned above people can choose to make their investment decisions on their own or by using a financial professional more experienced investors are able to make decisions and investment choices on their own keep in mind that there is no right way to manage a portfolio but investors should behave rationally by doing their own research using facts and data to back up decisions by attempting to reduce risk and maintain sufficient liquidity 1because investment strategies depend so heavily on your personal situation and goals it s important for you to do your research before you commit your capital to any investment special considerationsrisk is a huge component of an investment strategy some individuals have a high tolerance for risk while other investors are risk averse 5 here are a few common risk related rules for example u s treasury bonds bills and certificates of deposit cds are considered safe because they are backed by the credit of the united states however these investments provide a low return on investment once the cost of inflation and taxes have been included in the return on income equation there may be little growth in the investment along with risk investors should also consider changing their investment strategies over time 6 for instance a young investor saving for retirement may want to alter their investment strategy when they get older shifting their choices from riskier investments to safer options types of investment strategiesinvestment strategies range from conservative plans to highly aggressive ones a review of some of the top investors will show that there are a wide variety of strategies to consider conservative investment plans employ safe investments that come with low risks and provide stable returns highly aggressive ones are those that involve risky investments such as stocks options and junk bonds with the goal of generating maximum returns 2people who have a greater investment horizon tend to employ aggressive plans because they have a longer timeline while those who want to preserve capital are more likely to take a conservative approach 7many investors buy low cost diversified index funds use dollar cost averaging and reinvest dividends dollar cost averaging is an investment strategy where a fixed dollar amount of stocks or a particular investment are acquired on a regular schedule regardless of the cost or share price some experienced investors though select individual stocks and build a portfolio based on individual firm analysis with predictions on share price movements some investors may choose strategies such as value and growth investing with value investing an investor chooses stocks that look as they though trade for less than their intrinsic value this means that these stocks that the market is underestimating growth investing on the other hand involves investing capital in the stocks of junior companies that have the potential for earnings growth example of investment strategya 25 year old who starts off their career and begins saving for retirement may consider riskier investments because they have more time to invest and are more tolerant to risk they can also afford to lose some money in the event that the market takes a dive because they still have time earn more money this means they can invest in things like stocks and real estate a 45 year old on the other hand doesn t have a lot of time to put money away for retirement and would be better off with a conservative plan they may consider investing in things like bonds government securities and other safe bets meanwhile someone saving for a vacation or home won t have the same strategy as someone saving for retirement they may be better off putting their money away in a savings account or a cd for short term goals like these | |
what is an investment vehicle | an investment vehicle is a product used by investors to gain positive returns investment vehicles can be low risk such as certificates of deposit cds or bonds or they can carry a greater degree of risk such as stocks options and futures other types of investment vehicles include annuities collectibles such as art or coins mutual funds and exchange traded funds etfs investment vehicles explainedinvestment vehicles refer to any method by which individuals or businesses can invest and ideally grow their money there is a wide variety of investment vehicles and many investors choose to hold at least several types in their portfolios holding different types of investment in a portfolio minimizes risk through diversification because a portfolio constructed of different types of assets will on average yield higher long term returns types of investment vehiclesthe different types of investment vehicles are subject to regulation in the jurisdiction in which they are provided each type has its own risks and rewards deciding which vehicles fit particular portfolios depends on the investor s knowledge of the market skills in financial investing risk tolerance financial goals and current financial standing ownership investmentsinvestors who delve into ownership investments own particular assets that they expect to grow in value ownership investments include stocks real estate precious objects and businesses stocks also called equity or shares give investors a stake in a company and its profits and gains real estate owned by investors can be rented or sold to provide higher net profits for the owner precious objects such as collectibles art and precious metals are considered ownership investments if they are sold for a profit capital used to build businesses that provide products and services for profit is another type of ownership investment lending investmentswith lending investments people allow their money to be used by another person or entity with the expectation it will be repaid the lendor typically charges interest on the loan so that they earn a profit once the loan is repaid including the interest charges this type of investment is low risk and provides low rewards examples of lending investments include bonds certificates of deposit and treasury inflation protected securities tips investors investing in bonds allow their money to be used by corporations or the government with the expectation it will be paid back with profit after a set period with a fixed interest rate certificates of deposit cds are offered by banks a cd is a promissory note provided by banks that locks the investor s money in a savings account for a set period with a higher interest rate treasury inflation protected securities tips are bonds provided by the u s treasury and crafted to protect investors against inflation investors who put their money in tips get their principal and interest back when their investment matures over time both principal and interest are indexed for inflation cash equivalentscash equivalents are financial investments that are considered as good as cash these are savings accounts or money market funds the investments are liquid but have low returns pooled investment vehiclesmultiple investors often pool their money to gain certain advantages they would not have as individual investors this is known as a pooled investment vehicle and can take the form of mutual funds pension funds private funds unit investment trusts uits and hedge funds in a mutual fund a professional fund manager chooses the type of stocks bonds and other assets that should compose the client s portfolio the fund manager charges a fee for this service a pension plan is a retirement account established by an employer into which an employee pays part of their income private funds are composed of pooled investment vehicles such as hedge funds and private equity funds and are not considered investment companies by the securities and exchange commission sec unit investment trusts provide a fixed portfolio with a specified period of investment the investments are sold as redeemable units hedge funds group together client money to make what are often risky investments using a long and short strategy leverage and exotic securities in the aim of achieving higher than usual returns known as alpha bottom linethe vehicles that investors can use to try to obtain returns are wide ranging however the investor should understand the risks of any vehicle that they choose a financial advisor can assess an investor s current financial situation their goals and their needs to develop the most appropriate portfolio and investment strategy | |
what is an investment vehicle | an investment vehicle is a product used by investors to gain positive returns investment vehicles can be low risk such as certificates of deposit cds or bonds or they can carry a greater degree of risk such as stocks options and futures other types of investment vehicles include annuities collectibles such as art or coins mutual funds and exchange traded funds etfs investment vehicles explainedinvestment vehicles refer to any method by which individuals or businesses can invest and ideally grow their money there is a wide variety of investment vehicles and many investors choose to hold at least several types in their portfolios holding different types of investment in a portfolio minimizes risk through diversification because a portfolio constructed of different types of assets will on average yield higher long term returns types of investment vehiclesthe different types of investment vehicles are subject to regulation in the jurisdiction in which they are provided each type has its own risks and rewards deciding which vehicles fit particular portfolios depends on the investor s knowledge of the market skills in financial investing risk tolerance financial goals and current financial standing ownership investmentsinvestors who delve into ownership investments own particular assets that they expect to grow in value ownership investments include stocks real estate precious objects and businesses stocks also called equity or shares give investors a stake in a company and its profits and gains real estate owned by investors can be rented or sold to provide higher net profits for the owner precious objects such as collectibles art and precious metals are considered ownership investments if they are sold for a profit capital used to build businesses that provide products and services for profit is another type of ownership investment lending investmentswith lending investments people allow their money to be used by another person or entity with the expectation it will be repaid the lendor typically charges interest on the loan so that they earn a profit once the loan is repaid including the interest charges this type of investment is low risk and provides low rewards examples of lending investments include bonds certificates of deposit and treasury inflation protected securities tips investors investing in bonds allow their money to be used by corporations or the government with the expectation it will be paid back with profit after a set period with a fixed interest rate certificates of deposit cds are offered by banks a cd is a promissory note provided by banks that locks the investor s money in a savings account for a set period with a higher interest rate treasury inflation protected securities tips are bonds provided by the u s treasury and crafted to protect investors against inflation investors who put their money in tips get their principal and interest back when their investment matures over time both principal and interest are indexed for inflation cash equivalentscash equivalents are financial investments that are considered as good as cash these are savings accounts or money market funds the investments are liquid but have low returns pooled investment vehiclesmultiple investors often pool their money to gain certain advantages they would not have as individual investors this is known as a pooled investment vehicle and can take the form of mutual funds pension funds private funds unit investment trusts uits and hedge funds in a mutual fund a professional fund manager chooses the type of stocks bonds and other assets that should compose the client s portfolio the fund manager charges a fee for this service a pension plan is a retirement account established by an employer into which an employee pays part of their income private funds are composed of pooled investment vehicles such as hedge funds and private equity funds and are not considered investment companies by the securities and exchange commission sec unit investment trusts provide a fixed portfolio with a specified period of investment the investments are sold as redeemable units hedge funds group together client money to make what are often risky investments using a long and short strategy leverage and exotic securities in the aim of achieving higher than usual returns known as alpha bottom linethe vehicles that investors can use to try to obtain returns are wide ranging however the investor should understand the risks of any vehicle that they choose a financial advisor can assess an investor s current financial situation their goals and their needs to develop the most appropriate portfolio and investment strategy | |
what are investor relations ir | the investor relations ir department is a division of a business usually a public company whose job it is to provide investors with an accurate account of company affairs this helps private and institutional investors make informed decisions on whether to invest in the company understanding investor relations ir investor relations ensures that a company s publicly traded stock is being fairly traded through the dissemination of key information that allows investors to determine whether a company is a good investment for their needs ir departments are sub departments of public relations pr departments and work to communicate with investors shareholders government organizations and the overall financial community companies normally start building their ir departments before going public during this pre initial public offering ipo phase ir departments can help establish corporate governance conduct internal financial audits and start communicating with potential ipo investors for example when a company goes on an ipo roadshow it is common for some institutional investors to become interested in the company as an investment vehicle once interested institutional investors require detailed information about the company both qualitative and quantitative to obtain this information the company s ir department is called upon to provide a description of its products and services financial statements financial statistics and an overview of the company s organizational structure the ir department s largest role is its interactions with investment analysts who provide public opinion on the company as an investment opportunity investor relations and legislationthe sarbanes oxley act also known as the public company accounting reform and investor protection act was passed in 2002 increasing reporting requirements for publicly traded companies this expanded the need for public companies to have internal departments dedicated to investor relations reporting compliance and the accurate dissemination of financial information 1in the aftermath of the financial crisis the obama administration passed the dodd frank wall street reform and consumer protection act of 2009 to prevent financial institutions from taking excessive risks and introduced new measures to prevent lenders from exploiting consumers to achieve this the legislation established an independent agency called the consumer financial protection burea cfpb tasked with setting and enforcing clear standardized rules for companies providing financial services 2the legislation strengthened investor relations by requiring more transparency across the financial system for example the cfpb now requires that a mortgage disclosure comes in a single form that outlines associated risks and costs allowing consumers to compare loans with other lenders similarly the legislation strengthened the credit card accountability responsibility and disclosure card act of 2009 requiring issuers to disclose rates and fees clearly to help customers make more informed financial decisions additionally the reforms prohibit credit card companies from directly marketing promotions to young consumers 3investor relations functionsir teams are typically tasked with coordinating shareholder meetings and press conferences releasing financial data leading financial analyst briefings publishing reports to the securities and exchange commission sec and handling the public side of any financial crisis in addition ir departments have to be aware of changing regulatory requirements and advise the company on what can and cannot be done from a pr perspective for example ir departments have to lead companies in quiet periods where it is illegal to discuss certain aspects of a company and its performance the ir department s largest role is its interactions with investment analysts who provide public opinion on the company as an investment opportunity these opinions influence the overall investment community and it is the ir department s job to manage analysts expectations goals of investor relationsir is intended to increase and sustain investor and other stakeholder confidence by giving them accurate and timely information regarding the company s financial and operating performance it s also used to communicate the strategic plans and objectives ir seeks to maximize shareholder value by giving investors a thorough picture of the business strategy and expansion objectives of the company this may enhance interest from existing investors boost demand for the company s shares and ultimately raise the share price ir is also intended to enhance corporate governance by making sure that the business complies with pertinent laws rules and moral guidelines this could increase the company s access to capital markets as well as its reputation and trust with investors in this realm ir is meant to invoke confidence that a company is adhering to all of the required laws set forth by governing bodies communication is also made easier because to ir which acts as a conduit between a firm s stakeholders and investors this gives investors access to key decision makers within the company this can also support the company in addressing investor issues giving management input and fostering positive connections with its stakeholders companies often have pages on their website dedicated to investor relations this section will house financial statements external disclosures sec filings or annual reports benefits of investor relationsby leveraging ir companies can increase their access to capital markets which can enable them to obtain finance more effectively and at a reduced cost this is done by developing relationships with investors and analysts ir contributes to greater transparency by delivering accurate and timely information to investors about a company s financial performance strategic positioning and other significant developments investor trust can be increased and the company s reputation can be enhanced as a result effective ir may also assist businesses in growing their investor base and luring fresh capital by attracting new investors and raising demand for the company s stock effective ir can assist raise the liquidity of a company s shares this could enhance the company s worth and make it easier for all investors to trade companies can increase their access to capital markets which can enable them to obtain finance more effectively and at a reduced cost by developing relationships with investors and analysts effective ir may also assist businesses in growing their investor base and luring fresh capital last by ensuring that businesses adhere to pertinent laws regulations and moral standards ir aids in enhancing corporate governance this could increase the company s access to capital markets as well as its reputation and trust with investors | |
why is it important for a company to have an investor relations division | companies require an investor relations division to provide current and prospective investors with relevant information so they can make informed investment decisions failure to disclose information that may have a material impact on a company s share price could result in a fine or other disciplinary action from regulators | |
what are the primary functions of an investor relations division | the investor relations team oversees functions such as coordinating shareholder meetings and press conferences releasing financial data leading financial analyst briefings publishing sec filings and handling the public relations of a company specific financial crisis | |
what role does an investor relations division play before a company goes public | before a company goes public an investor relations division may assist with establishing corporate governance conducting internal financial audits and disseminating information to prospective ipo investors | |
what effect does government legislation have on investor relations | legislation such as the sarbanes oxley act and dodd frank act have strengthened investor relations by requiring financial institutions to provide greater transparency particularly about fees and risk reforms have also increased reporting requirements for publicly traded companies the bottom lineinvestor relations refers to a division within a company that provides investors with information about its corporate affairs helping them make more informed investment decisions the ir division typically works closely with accounting and legal departments along with executive management to ensure the dissemination of essential financial information often companies establish an ir department before going public with the division assisting in areas such as corporate governance financial auditing and communicating with prospective ipo investors since the 2008 financial crisis legislation such as the sarbanes oxley act and dodd frank act has strengthened investor relations by requiring greater reporting and transparency across the financial system to help consumers make more informed decisions | |
what is the invisible hand | the invisible hand is a metaphor for the unseen forces that move the free market economy through individual self interest and freedom of production and consumption the best interests of society as a whole are fulfilled the constant interplay of individual pressures on market supply and demand causes the natural movement of prices and the flow of trade the term invisible hand first appeared in adam smith s famous work the wealth of nations to describe how free markets can motivate individuals acting in their own self interest to produce what is societally necessary investopedia madelyn goodnight | |
how the invisible hand works | the invisible hand metaphor distills two critical ideas first voluntary trades in a free market produce unintentional and widespread benefits second these benefits are greater than those of a regulated planned economy each free exchange signals which goods and services are valuable and how difficult they are to bring to market these signals captured in the price system spontaneously direct competing consumers producers distributors and intermediaries each pursuing their plans to fulfill the needs and desires of others the invisible hand is part of the laissez faire policy concerning the market laissez faire translates to let do let go and this approach holds that the market will find equilibrium without government or other interventions forcing it into unnatural patterns scottish enlightenment thinker adam smith introduced the concept in several of his writings such as the economic interpretation in his book an inquiry into the nature and causes of the wealth of nations often shortened to just the wealth of nations published in 1776 and an earlier work the theory of moral sentiments published in 1759 the invisible hand concept was in use during the 1900s 12the term invisible hand only appears twice in the wealth of nations a volume of around 1 000 pages 1the invisible hand and market economiesbusiness productivity and profitability are improved when profits and losses accurately reflect what investors and consumers want this concept is well demonstrated through a famous example in richard cantillon s an essay on economic theory 1755 the book from which smith developed his invisible hand concept 3smith s the wealth of nations was published during the first industrial revolution and the same year as the american declaration of independence his invisible hand became one of the primary justifications for an economic system of free market capitalism as a result the business climate of the u s developed with a general understanding that voluntary private markets are more productive than government run economies even government rules sometimes try to incorporate the invisible hand former fed chair ben bernanke explained the market based approach is regulation by the invisible hand which aims to align the incentives of market participants with the objectives of the regulator 4examples of the invisible handconsider an example of a small business facing stiff competition to best position itself in the market the small business decides it will invest in higher quality materials for its manufacturing process as well as reduce its prices though the small business may be taking these steps out of self interest in this instance to drive sales and capture market share the invisible hand is at work because the market will have access to more affordable yet higher quality goods another example of the invisible hand is the ripple effect that a retail company can have when attempting to meet consumer demand consider a hardware store that anticipates demand for yard maintenance tools the hardware store will coordinate with a manufacturer to secure the appropriate goods meanwhile the manufacturer will communicate with a raw materials distributor to ensure it has the items it needs to meet the hardware store s demands each entity is acting in its own self interest however each is also creating economic activity for other parties in addition the entities are stringing together a process that results in consumers receiving a product that they need though each individual action taken by itself may not amount to much the invisible hand helps move resources along a process to deliver a final product | |
why is the invisible hand important | the invisible hand allows the market to reach equilibrium without government or other interventions forcing it into unnatural patterns when supply and demand find equilibrium naturally oversupply and shortages are avoided the best interest of society is achieved via self interest and freedom of production and consumption | |
what did adam smith say about the invisible hand | adam smith wrote about an invisible hand during the 1700s noting that it benefits the economy and society thanks to self interested individuals the invisible hand include the automatic pricing and distribution mechanisms in an economy that interact directly and indirectly with centralized top down planning authorities | |
why is the invisible hand controversial | critics argue that the idea that actions of self interested profit driven actors will converge on some social optimum is clearly false instead they naturally lead to negative externalities economic and social inequalities greed and exploitation moreover competition driven by the invisible hand can ultimately result in monopolies and the concentration of economic power both of which are undesirable for society other critiques underscore that the concept relies on the assumption that producers can easily switch from producing one type of good to any other depending on relative profitability at a given moment this does not account for the sometimes enormous costs of switching and the idea that people may engage in a business that they enjoy doing or which has been passed down in a family regardless of profitability the bottom linethe invisible hand represents the idea that specialization in production can lead self interested individuals to produce what is socially necessary and for the good of all this is because increased specialization naturally leads to a web of mutual interdependencies for example a shoemaker needs others to produce their house while a homebuilder relies on a shoemaker for shoes on a larger scale market forces and competition motivate producers to make what is most profitable at the lowest cost encouraging technological progress and innovation for the benefit of all | |
what is an invoice | an invoice is a time stamped commercial document that itemizes and records a transaction between a buyer and a seller if goods or services were purchased on credit the invoice usually specifies the terms of the deal and provides information on the available payment methods types of invoices may include a paper receipt a bill of sale a debit note a sales invoice or an online electronic record investopedia nez riazthe basics of an invoicean invoice must state it is an invoice on the face of the bill it typically has a unique identifier called the invoice number which is useful for internal and external reference an invoice typically contains contact information for the seller or service provider in case there is an error relating to the billing payment terms may be outlined on the invoice as well as the information relating to any discounts early payment details or finance charges assessed for late payments it also presents the unit cost of an item total units purchased freight handling shipping and associated tax charges and it outlines the full amount owed companies may opt to send a month end statement as the invoice for all outstanding transactions if this is the case the statement must indicate that no subsequent invoices will be sent historically invoices have been recorded on paper often with multiple copies generated so the buyer and seller each have a transaction record currently computer generated invoices are quite common they can be printed on demand or sent by email to each party electronic records also allow you to search and sort transactions easier by number date goods or client a pro forma invoice is a preliminary bill of sale sent to buyers in advance of a shipment or delivery of goods the invoice will typically describe the purchased items and other important information such as the shipping weight and transport charges pro forma invoices often come into play with international transactions especially for customs purposes on imports a pro forma invoice is a binding agreement although the terms of sale are subject to change the invoice date represents the time stamped time and date on which the goods have been billed and the transaction officially recorded therefore the invoice date has essential payment information as it dictates the bill s credit duration and due date this is especially crucial for entities offering credit such as net 30 which means payment is due in 30 days likewise companies that offer customers the option to return items typically have a deadline based on a specific number of days from proof of purchase as indicated on the invoice since the advent of the computer era people and businesses have found it easier to rely on electronic invoicing as an alternative to paper documents electronic invoicing or e invoicing is a form of electronic billing that generates stores and monitors transaction related documents between parties and ensures the terms of their agreements are fulfilled these e documents may include invoices and receipts purchase orders debit and credit notes payment terms and instructions and remittance slips digital invoices are typically sent via email web page or app advantages include the following e invoicing includes several technologies and entry options and is used as a general term to describe any method by which an invoice is electronically presented to a customer for payment several e invoicing standards such as edifact and ubl have been developed around to world to facilitate adoption and efficiency 1invoices and accounts payableinvoices track the sale of a product for inventory control accounting and tax purposes which help track accounts payable and similar obligations due many companies ship the product and expect payment later so the total amount due becomes an account payable for the buyer and an account receivable for the seller modern day invoices are transmitted electronically rather than paper based if an invoice is lost the buyer may request a copy from the seller the use of an invoice represents the presence of credit as the seller has sent a product or provided a service without receiving cash upfront invoices differ from purchase orders created before a customer orders a good or service invoices and internal controlsinvoices are a critical element of accounting internal controls charges on an invoice must be approved by the responsible management personnel alternatively an invoice is matched to a purchase order and upon reconciling the information payment is made for approved transactions an auditing firm ensures invoices are entered into the appropriate accounting period when testing for expense cutoff | |
is an invoice a bill or receipt | an invoice is generally used to document products or services sold and delivered to a customer so it is a bill a receipt is a document that shows payment was received | |
does an invoice mean you ve been paid | an invoice generally serves as a notification that payment is owed | |
what is an invoice used for | besides notifying a customer that payment is due it also serves as a paper trail for accounting purposes the bottom linean invoice is a document used to notify a customer that payment is due it also serves as a record for the issuing business so that it can track its receivables in the past invoices were only issued on paper due to the limitations of technology more recently electronic invoices become popular because they save time and money and can be generated and sent automatically | |
what is invoice financing | invoice financing is a way for businesses to borrow money against the amounts due from customers invoice financing helps businesses improve cash flow pay employees and suppliers and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money invoice financing can solve problems associated with customers taking a long time to pay as well as difficulties obtaining other types of business credit invoice financing is also known as accounts receivable financing or simply receivables financing understanding invoice financing | |
when businesses sell goods or services to large customers such as wholesalers or retailers they usually do so on credit this means that the customer does not have to pay immediately for the goods that it purchases the purchasing company is given an invoice that has the total amount due and the bill s due date however offering credit to clients ties up funds that a business might otherwise use to invest or grow its operations to finance slow paying accounts receivable or to meet short term liquidity businesses may opt to finance their invoices | invoice financing is a form of short term borrowing that is extended by a lender to its business customers based on unpaid invoices through invoice factoring a company sells its accounts receivable to improve its working capital which would provide the business with immediate funds that can be used to pay for company expenses invoice financing from the lender s perspectiveinvoice financing benefits lenders because unlike extending a line of credit which may be unsecured and leave little recourse if the business does not repay what it borrows invoices act as collateral for invoice financing the lender also limits its risk by not advancing 100 of the invoice amount to the borrowing business invoice financing does not eliminate all risk though since the customer might never pay the invoice this would result in a difficult and expensive collections process involving both the bank and the business doing invoice financing with the bank | |
how invoice financing is structured | invoice financing can be structured in a number of ways most commonly via factoring or discounting with invoice factoring the company sells its outstanding invoices to a lender who might pay the company 70 to 85 up front of what the invoices are ultimately worth assuming the lender receives full payment for the invoices it will then remit the remaining 15 to 30 of the invoice amounts to the business and the business will pay interest and or fees for the service since the lender collects payments from the customers the customers will be aware of this arrangement which might reflect poorly on the business as an alternative a business could use invoice discounting which is similar to invoice factoring except that the business not the lender collects payments from customers so customers are not aware of the arrangement with invoice discounting the lender will advance the business up to 95 of the invoice amount when clients pay their invoices the business repays the lender minus a fee or interest | |
what is iota | iota miota is a distributed ledger designed to record and execute transactions between machines and devices in the internet of things iot ecosystem the ledger uses a cryptocurrency called miota to account for transactions in its network iota s key innovation is tangle a system of nodes used for confirming transactions iota claims that tangle is faster and more efficient than typical blockchains used in cryptocurrencies the iota foundation the nonprofit foundation responsible for the ledger has inked agreements with prominent companies such as bosch and volkswagen to extend the platform s utility among connected devices understanding iotabillions of devices were connected to the internet by 2020 within this internet of things iot ecosystem devices can exchange data and payment information with multiple other devices in transactions conducted throughout the day iota intends to become the standard mode of conducting transactions on devices its founders have described the ledger as a public permission less backbone for the internet of things that enables interoperability between multiple devices in simple terms this means that it will enable transactions between connected devices and anyone will be able to access it iota s founders claim that it solves multiple problems plaguing cryptocurrencies that are developed on standard blockchains these problems include the centralization of mining to a specific group low network speeds and scalability for cryptocurrencies scalability refers to the problem of increasing the number of transactions processed by a blockchain without affecting other metrics those problems are primarily caused due to a backlog of transactions on bitcoin s blockchain the backlog itself is due to a variety of reasons from small block sizes to the difficulty of puzzles that miners must solve to earn the cryptocurrency as a reward iota solves these problems by reconfiguring the blockchain architecture into tangle a new way of organizing data and confirming transactions history of iotasergey ivancheglo serguei popov david s nsteb and dominik schiener who joined later together co founded iota the project was announced in october 2015 through a post announcing a token sale in an online bitcoin forum 1 the roots of iota go back to the jinn project that project aimed to develop ternary hardware or low cost and energy efficient hardware primarily general purpose processors for use in the iot ecosystem jinn held a crowd sale for its tokens in september 2014 approximately 100 000 tokens were sold during the crowd sale amounting to collections of 250 000 the jinn tokens were soon in hot water because they were marketed as profit sharing tokens which might be seen as security tokens initial coin offerings icos were still gaining traction at that time and there was no clarity about their regulatory status in 2015 jinn was rebranded as iota and another token sale was held the tokens were marketed as utility tokens this time around jinn token holders could exchange their tokens at equivalency in the new system according to david s nsteb iota was spawned due to the jinn project so it only makes sense first to introduce iota and then jinn afterward he said the genesis transaction for iota was an address with a balance that contained all miota its cryptocurrency that will ever be mined but reports state that a snapshot of the genesis transaction is yet to be found online these tokens were dispersed to other founder addresses the total number of miotas planned to be in existence is 27 quadrillion according to iota s founders the total number of miotas fits in nicely with the maximum allowable integer value in javascript a programming language within three months of its debut on cryptocurrency markets miota reached a peak valuation of 14 5 billion during the 2016 2017 bull market however its value later crashed along with most other cryptocurrencies concerns about iotacriticism of iota has mainly centered around its technical flaws as with most cryptocurrencies iota s system is nascent and unproven a phishing attack on its network resulted in the theft of miota worth 3 94 million in response to the attack the iota development team wrote a blog post outlining steps to generate a strong seed for using its cryptocurrency iota s developers are supposed to have rolled their crypto in other words they created their encryption method from scratch forgoing the widely used sha 256 hash function used in bitcoin the team at mit s digital currency initiative found serious vulnerabilities with iota s hash function which is called curl the function produced the same output when it was given two different inputs this property is known as collision and denotes a broken hash function in their analysis of the vulnerability the mit team stated that a bad actor could have destroyed or stolen user funds from tangle with their technique iota s team has corrected the vulnerability there are potential issues with iota s claims to eliminate scalability problems for blockchains through the use of dags vitalik buterin the co founder of ethereum has cast doubt on the ability of hashgraphs the underlying data structures for dag to solve scalability issues as he explains it current versions of hashgraphs do not solve for a blockchain s dependency on computer memory and processing power the scalability of a system using hashgraphs still depends on the capacity and speed of individual computers within its network as of 2020 iota s network used a central server known as a coordinator to ensure transaction security this practice has diluted its claims of being a decentralized system since the introduction of a coordinator has resulted in the introduction of a single point of failure it has also slowed down the network s speed because parallel processing does not occur in a coordinator based system however the iota foundation had a plan called the coordicide to remove the coordinator in the future 2future of iotaalthough iota s market capitalization was still down substantially from its 2017 highs this cryptocurrency s fortunes showed signs of improving by late 2020 it started 2020 with a market capitalization of 446 million and was above 900 million as of dec 19 2020 that s a gain of over 100 but it was a rocky road iota s continued partnership with large corporations and focus on the growing internet of things iot also help to set it apart from other cryptocurrencies and generate investor interest it seems to be working because as of sept 28 2021 iota s market cap is around 3 2 billion 3cryptocurrencies need to offer something different to succeed and iota aims for iot optimization | |
how is iota different from bitcoin | iota s solution to bitcoin s problems is to do away with several key concepts and topographical constraints of a blockchain miota iota s cryptocurrency is premined and consensus of transactions occurs differently compared to a blockchain iota developers have proposed a new data structure a way to organize numeric representations within a computer s memory known as tangle tangle is a decentralized acyclic graph dag a system of nodes that is not sequential thus each node can be connected to multiple other nodes in a tangle but they are connected only in a particular direction meaning that a node cannot refer back to itself a standard blockchain is also a dag because it is a sequential linked set but iota s tangle is a parallel system in which transactions can be processed simultaneously instead of sequentially as more systems are attached to it the tangle becomes more secure and efficient at processing transactions in bitcoin a group of systems running full nodes that contain the entire history of transactions for a ledger are required for confirmations and consensus this process is energy and computation intensive full node miners are not required in tangle each new transaction is confirmed by referencing two previous transactions reducing the amount of time and memory needed to verify a transaction an easily solvable and straightforward proof of work pow puzzle is added to the transaction as a final step the two transactions that are chosen are referred to as tips iota s system uses a tip selection algorithm with confidence as a measure to approve the transaction suppose a transaction has been approved 97 times in the past then there is 97 confidence that a node will approve it in the future related to the concept of confidence is a transaction s weight as it moves through tangle a transaction gathers weight a transaction s weight increases with the number of approvals once a transaction is confirmed it is broadcast to the entire network then another unconfirmed transaction can choose the newly confirmed transaction as one of the tips to confirm itself this method of confirming a transaction results in no fees and low power consumption enabling miota to be used across a wide variety of devices and machines with different power requirements | |
what is an iou | an iou a phonetic acronym of the words i owe you is a document that acknowledges the existence of a debt an iou is often viewed as an informal written agreement rather than a legally binding commitment dating as far back as the 18th century at least ious are still very much in use an iou between two people conducting business may be followed up with a more formal written agreement investopedia jessica olah | |
how an iou works | typically ious are produced on the spur of the moment towards the end of a business meeting for example as a sort of memorandum of intent they then are often followed up with a more formal written agreement or contract no standard format or terminology exists for an iou at the very least details such as the date of the agreement the amount of debt the date for repayment the parties involved and the signature of the borrower are or should be included in its contents but often details like the interest due payment type repayment plan schedule including a specific final due date or consequences for nonpayment are not the iou s informal nature means there may be uncertainty about whether it is a binding that is a legally enforceable contract and whether it carries much weight in a court proceeding as a result legal remedies for nonpayment may be harder to enforce with ious than they would be with more formal agreements that deal with debt such as a promissory note or a bond indenture due to this uncertainty an iou is generally not considered a negotiable instrument meaning it can t be assigned transferred or sold to someone else or traded on an open market however there are downloadable legal templates available now for ious providing an outline of the kind of details that a well written one should include that may make ious easier to enforce and to stand up in court example of an iousay smithco bricks places an order for raw materials and does not have enough cash to pay for the entire order when it is delivered instead it pays a down payment and issues an iou promising to pay for the rest of the raw materials within 30 days with or without interest assuming that smithco has an ongoing business relationship with the supplier this might be quite acceptable to both parties the term iou has become so familiar that it crops up in other contexts a bond issue is sometimes called an iou for example accounts receivable may informally be referred to as ious special considerationsa bookkeeper may record an outstanding debt as an iou the iou is thus an accounts receivable item and is counted as an asset on the balance sheet how exactly it is recorded depends on the time frame iou vs promissory noteious have a lot in common with promissory notes both are written financial agreements that deal with debt specifically the promise of one party to repay another a certain sum on or by a certain date the key difference is that the promissory note is more formal and complete than the iou it not only gives a due date for the debt to be repaid it usually outlines other details of repayment the interest rate of the loan payment schedule size of repayments and often penalties for late or non payments the term promissory note must appear in the contents the note is signed by both parties lender and borrower and often witnessed and notarized as well in short promissory notes are more specific and serious than ious though still not as formal and enforceable as a loan agreement or contract they tend to stand up better in court in fact promissory notes often accompany mortgage agreements or student loan agreements it s signing this note that actually obligates the borrower to repay if the terms are unconditional enough promissory notes may be used as negotiable instruments issuers of promissory notes should know when it comes to filing a lawsuit for nonpayment a promissory note is subject to the statute of limitations set by the local state on such agreements statutes of limitations can range from three to 15 years the clock starts ticking from the date of the first breach however some courts have ruled that within a note each missed payment has its own statute of limitations starting on the date the specific payment became past due 1iou faqsan iou is a written but largely informal acknowledgement that a debt exists between two parties and the amount the borrower owes the lender signed by the borrower it often indicates a date for repayment of the debt but often omits other specifics like the payment schedule or any interest charged it can t be sold or transferred to another party and offers the lender little legal recourse if it is not honored by the borrower amanda t s close friend karen p needs 1 500 in cash for a security deposit on a new apartment she needs to put the money down right away but won t have that sum available for another few months amanda wants to help karen out but also wants to have written evidence of the loan she s made to her friend amanda types up a document that stipulates karen owes her amanda t 1 500 and that karen will repay that sum on april 1 2021 three months from the current date karen signs the document in so doing karen officially gives amanda an iou for the 1 500 she has borrowed ious can take many shapes and forms they can be typed or handwritten drawn up by either party and appear on any sort of document including the proverbial cocktail napkin at a bare minimum an iou should include the borrower s name the lender s name the amount of the debt the current date the date the debt is due and the borrower s signature in addition it s recommended that ious contain increasingly there are iou forms and templates that can be accessed online an iou is a legal document that can be introduced in a court of law though whether or not it is binding is open to dispute some authorities feel an iou isn t binding at all it s merely the acknowledgement that a debt exists others feel it is binding though whether it can actually be enforced is a different story basically the more detailed the iou the more likely it is to be enforceable the fewer specifics an iou has the harder it is for a court to determine the obligations and rights of the principals involved in the iou or perhaps even who they are an iou doesn t have to be notarized however some legal authorities feel having a notary affix their seal to an iou makes it more official and thus more likely to be enforceable certainly it formalizes the agreement indicating a third party witnessed it making it more likely that the lender would prevail in court should a dispute over nonpayment occur notarizing an iou makes it closer to a promissory note a more official and binding document the bottom linean iou is a written but relatively informal contract between two parties recording a debt and an agreement to repay it it outlines the basics of the arrangement but often little else such as the terms or repayment schedule of the loan for that reason it is not as binding or enforceable as more official contracts that have specifications and are witnessed and or notarized ious are often for small sums and between individuals however they can be used by businesses as well often between two firms that have regular ongoing relationships like vendors and suppliers in effect the company issuing an iou is taking out a short term loan or buying on credit promising to pay in full for goods or services later on instead of right away a firm s accountants may enter any sort of outstanding debt as an iou in fact some bookkeeping systems record any accounts receivables as ious | |
what is an ira rollover | an ira rollover is a transfer of funds from a retirement account such as an employer sponsored plan into an individual retirement account ira the purpose of a rollover is to maintain the tax deferred status of those assets ira rollovers are commonly used to hold 401 k 403 b or profit sharing plan assets that are transferred from a former employer s sponsored retirement account or qualified plan an ira rollover can also occur as an ira to ira transfer understanding ira rolloversira rollovers can occur from a retirement account such as a 401 k into an ira or as an ira to ira transfer you can also rollover employer retirement variable annuity contracts such as 457 or 403 b plans most rollovers take place when people change jobs and wish to move 401 k or 403 b assets into an ira but ira rollovers also happen when retirement savers want to switch to an ira with better benefits or investment choices 1there are different types of ira rollovers direct and indirect it s crucial to follow internal revenue service irs rules to avoid paying taxes and penalties direct ira rolloverin a direct rollover the transfer of assets from a retirement plan to an ira is facilitated by the two financial institutions involved in the transfer to engineer a direct rollover you need to ask your plan administrator to send the funds directly to the ira in ira to ira transfers the custodian from the old account sends the rollover amount to the custodian of the new ira indirect ira rolloverin an indirect rollover the assets from your existing account or plan are liquidated and the custodian or plan sponsor mails a check made out to you or deposits the funds directly into your personal bank or brokerage account this route leaves it up to you to redeposit the funds into the new ira to be considered a tax free rollover the money must be deposited in the ira within 60 days if you miss the 60 day deadline then the withdrawal will be considered a distribution in the eyes of the irs and some of it may be subject to income tax as well as an early withdrawal penalty in general withdrawals before age 59 from a traditional ira trigger a 10 penalty if you withdraw roth ira earnings before age 59 a 10 penalty usually applies roth contributions are not subject to the penalty the same rules apply if you are doing an ira to ira rollover 2the irs requires your previous employer to withhold 20 of your funds if you receive a check made out to you which cannot be recovered until you file your annual tax return but if the check is made out to the ira then you will not subject to withholding custodians will withhold 10 from ira distributions that you intend to roll over unless you elect out of withholding 1some people choose an indirect rollover if they want to take a short term loan from their retirement account in this case less than 60 days special considerationsthe irs limits ira to ira indirect rollovers to one every 12 months the one year calendar runs from when you made the distribution and applies to traditional ira to traditional ira rollovers or roth ira to roth ira rollovers 1the limit on ira to ira indirect rollovers does not apply to distributions from employer sponsored retirement plans or rollovers from traditional iras to roth iras the latter is known as a roth conversion direct ira to ira rollovers are also not subject to the one year rule 1pay strict attention to which type of ira or other retirement account you are transferring from and which type you are transferring to you can easily roll over funds from a roth ira or a roth 401 k to a new roth ira the same is true if you re rolling over monies from a traditional ira or a standard 401 k to a traditional ira anything else has significant tax consequences that you need to work through carefully before you do the rollover traditional iras and 401 k s contain pretax funds while contributions to roth iras and 401 k s are made with after tax monies unlike 401 k plans iras allow you to invest in a wide array of assets such as stocks bonds exchange traded funds etfs and mutual funds | |
what is a direct rollover | a direct rollover is when a distribution from a retirement account is not paid directly to you instead the financial institution or plan sponsor holding your existing retirement funds makes the transfer directly to your new individual retirement account ira a direct transfer is the easiest way to avoid taxes and early withdrawal penalties | |
what is an indirect rollover | an indirect rollover is a transfer of money from a tax deferred plan or account to another tax deferred retirement account such as an ira in which the funds are paid to you directly you must redeposit the full distribution amount into another qualified retirement account within 60 days to avoid taxes and penalties can i take a loan from my ira while iras don t allow for loans like many 401 k plans do you can borrow from your ira without taxes and penalties by applying the 60 day rollover rule it allows you to withdraw assets from your ira if you repay the full amount within 60 days which essentially amounts to an interest free short term loan | |
what is the iranian rial irr | irr is the currency abbreviation or fx symbol for the iranian rial iran s official currency the rial named after the spanish real first appeared in 1798 and is issued and managed by the central bank of the islamic republic of iran 1understanding the iranian rial irr one iranian rial is made up of 100 dinars but dinars are of no practical use because they are worth so little locally the irr uses the arabic symbol 3 as of december 2023 one u s dollar is worth roughly 42 023 irr 4while the rial was introduced in 1798 a currency called the qiran was used from 1825 to 1932 the rial was reintroduced in 1932 its value plummeted following the 1979 islamic revolution 1iran is an influential member of opec with a substantial percentage of the government s budget funded from the sale of oil 5 banknotes of its currency are issued in denominations of 100 200 500 1 000 2 000 5 000 10 000 20 000 50 000 and 100 000 rials while coins circulate in denominations of 50 100 250 500 1 000 2 000 and 5 000 rials 67a stable exchange rate typically helps a country prevent capital flight or investment capital from fleeing the country in search of more stable returns the irr is not pegged to the u s dollar or any currency meaning it s a free floating exchange rate however iran s central bank implements currency controls to keep the exchange rate stable 8 iran may be preparing regulations for bitcoin and other cryptocurrencies according to reports 910the iranian rial irr convertibilitysince the early 2000s the irr exchange rate has fluctuated between about 1 750 irr to one u s dollar usd to as high as 44 070 irr to one u s dollar 2the rial however is not easily exchanged for u s dollars relations between the two nations are frosty with the u s applying decades long economic sanctions and trade restrictions against the islamic republic of iran mainly as a way to punish the country for its nuclear ambitions and history of state sponsorship of terror groups 11price controls subsidies and other rigid government policies also weigh down the economy and corruption is widespread this often makes the irr a non convertible inconvertible currency which is any nation s legal tender that is not freely traded on the global foreign exchange market 12the gdp of iran in 2023 which is expected to grow to 386 22 billion in 2024 1314for offshore investors seeking to engage in trade with nations such as iran that have non convertible currencies they must do so through the use of a financial instrument known as a non deliverable forward ndf an ndf has no physical exchange in the local currency rather the net of the cash flows is settled in a convertible currency usually the u s dollar which gets around the non convertibility of the domestic currency ndfs are cash settled and usually structured as short term forward currency contracts 15the iranian rial vs tomanalthough the iranian rial is the official currency of iran citizens of the country also use the iranian toman one toman is equal to 10 rials in 2020 there was a discussion of replacing the rial with the toman as the official currency of iran due to inflation causing the rial to lose value against the dollar one toman would be worth 10 000 rials in effect iran would be cutting zeros off of its currency the country s parliament actually passed measures to replace the rial with the toman however as of the end of 2023 the rial still remains the country s official currency 1617 | |
which countries use the iranian rial | the only country to use the iranian rial is iran | |
how do you calculate the iranian rial exchange rate | the best way to calculate the iranian rial exchange rate is to use a currency converter such as the one found on xe com depending on the currency exchange rate you are interested in finding you can choose that currency in conjunction with the rial and get the exchange rate | |
why is iran s rial so weak | the iranian rial is weak primarily because of the political instability of iran the country operates an authoritarian regime that is unpopular amongst many of its citizens it also has been accused of supporting terrorism which has resulted in strict economic sanctions on the country which has decimated its economy furthermore the country depends heavily on oil with sanctions the country has difficulty selling its oil globally furthermore when the price of oil drops iran s economy is hit hard | |
what is the rial to toman exchange rate | one toman is equal to 10 iranian rials | |
what is an iron butterfly | an iron butterfly is an options trade that uses four different contracts as part of a strategy to benefit from stocks or futures prices that move within a defined range the trade is also constructed to benefit from a decline in implied volatility the key to using this trade as part of a successful trading strategy is forecast a time when option prices are likely to decline in value generally this usually occurs during periods of sideways movement or a mild upward trend the trade is also known by the nickname iron fly | |
how an iron butterfly works | option traders combine a number of bull and bear trades with the same expiration dates to form wingspread trade strategies some of these trading strategies include the condor spread the iron butterfly and the modified butterfly spread the iron butterfly trade is created with four options consisting of two call options and two put options these calls and puts are spread out over three strike prices all with the same expiration date the goal is to profit from conditions where the price remains fairly stable and the options demonstrate declining implied and historical volatility it can also be thought of as a combined option trade using both a short straddle and a long strangle with the straddle positioned in the middle of the three strike prices and the strangle positioned on two additional strikes above and below the middle strike price setting up the tradethe trade earns the maximum profit when the underlying asset closes exactly on the middle strike price on the close of expiration a trader will construct an iron butterfly trade with the following steps the strike prices for the option contracts sold in steps two and three should be far enough apart to account for a range of movement in the underlying this will allow the trader to be able to forecast a range of successful price movement as opposed to a narrow range near the target price for example if the trader thinks that over the next two weeks the underlying could land at the price of 50 and be within a range of five dollars higher or five dollars lower from that target price then that trader should sell a call and a put option with a strike price of 50 and should purchase a call option at least five dollars higher and a put option at least five dollars lower than the 50 target price in theory this creates a higher probability that the price action can land and remain in a profitable range on or near the day that the options expire deconstructing the iron butterflythe strategy has limited upside profit potential by design it is a credit spread strategy meaning that the trader sells option premiums and takes in a credit for the value of the options at the beginning of the trade the trader hopes that the value of the options will diminish and culminate in a significantly lesser value or no value at all the trader thus hopes to keep as much of the credit as possible the strategy has defined risk because the high and low strike options the wings protect against significant moves in either direction it should be noted that commission costs are always a factor with this strategy since four options are involved traders will want to make certain that the maximum potential profit is not significantly eroded by the commissions charged by their broker the iron butterfly trade profits as expiration day approaches if the price lands within a range near the center strike price the center strike is the price where the trader sells both a call option and a put option a short strangle the trade diminishes in value as the price drifts away from the center strike either higher or lower and reaches a point of maximum loss as the price moves either below the lower strike price or above the higher strike price iron butterfly trade examplethe following chart depicts a trade setup that implements an iron butterfly on ibm in this example the trader anticipates that the price of ibm shares will rise slightly over the next two weeks the company released its earnings report two weeks previous and the reports were good the trader believes that the implied volatility of the options will generally diminish in the coming two weeks and that the share price will drift higher therefore the trader implements this trade by taking in an initial net credit of 550 5 50 per share the trader will make a profit so long as the price of ibm shares moves in between 154 50 and 165 50 if the price stays in that range on the day of expiration or shortly before it the trader can close the trade early for a profit the trader does this by selling the call and put options that were previously purchased and buying back the call and put options that were sold at the initiation of the trade most brokers allow this to be done with a single order an additional trading opportunity available to the trader occurs if the price stays below 160 on the day of expiration at that time the trader can let the trade expire and have the shares of ibm 100 per put contract sold put to them for the price of 160 per share for example suppose the price of ibm closes at 158 per share on that day and assuming the trader lets the options expire the trader would then be obligated to buy the shares for 160 the other option contracts all expire worthless and the trader has no need to take any action this may seem like the trader has simply made a purchase of stock at two dollars higher than necessary but remember the trader took in an initial credit of 5 50 per share that means the net transaction can be seen differently the trader was able to purchase shares of ibm and collect 2 50 profit per at the same time 5 50 less 2 00 most of the effects of the iron butterfly trade can be accomplished in trades that require fewer options legs and therefore generate fewer commissions these include selling a naked put or buying a put calendar spread however the iron butterfly provides inexpensive protection from sharp downward moves that the naked put does not have the trade also benefits from declining implied volatility which the put calendar spread cannot do | |
what is the internal rate of return irr rule | the internal rate of return irr rule states that a project or investment should be pursued if its irr exceeds the minimum required rate of return or the hurdle rate its root lies in the internal rate of return which is the return required to break even or net present value npv this rule is an important tool for companies and investors if they want to determine whether to take on a certain project or investment or to compare it to others they may be considering investopedia eliana rodgersunderstanding the internal rate of return irr rulethe irr rule is essentially a guideline for deciding whether to proceed with a project or investment mathematically irr is the rate that would result in the net present value of future cash flows equaling exactly zero the higher the projected irr on a project and the greater the amount it exceeds the cost of capital the more net cash the project generates for the company so if the project looks profitable management should proceed with it on the other hand if the irr is lower than the cost of capital the rule suggests that the best course of action is to forego the project or investment investors and firms use the irr rule to evaluate projects in capital budgeting but it may not always be rigidly enforced generally the higher the irr the better however a company may prefer a project with a lower irr because it has other intangible benefits such as contributing to a bigger strategic plan or impeding competition a company may also prefer a larger project with a lower irr to a much smaller project with a higher rate because of the higher cash flows generated by the larger project advantages and disadvantages of the irr ruleanyone who uses the internal rate of return rule often finds it easy to determine and understand companies and investors can easily calculate it and compare it to other projects and investments that are under consideration another advantage of using this rule is that it helps companies and investors consider the time value of money tvm this is a concept that states that an amount of money will be worth more now than the same sum in the future as such the future cash flow that results from an investment is discounted to its present value under the irr rule the irr rule doesn t take the actual dollar value of the project or any anomalies in cash flows into account if there are any irregular or uncommon forms of cash flow the rule shouldn t be applied if it is it may result in flawed findings another key disadvantage of the irr rule is that it is flawed in its assumption of any reinvestments made from positive cash flow notably that they are made at the same internal rate of return easy to calculate and understandallows for comparison between other projects and investmentstakes time value of money into account | |
doesn t consider anomalies in cash flows | assumes that reinvestments are made at the same internal rate of returnexample of the irr rulelet s assume that a company is reviewing two projects in which to invest its money management must decide whether to move forward with one both or neither of the projects its cost of capital is 10 the cash flow patterns for each project are highlighted in the following table the company must calculate the irr for each project the initial outlay period 0 will be negative solving for irr is an iterative process where results for each period are summed using the following equation the upper case sigma denotes summation or creating terms for each period using the formula that follows the symbol and then adding the result for each period | |
where | the formula looks like this with the terms in order the initial outlay is multiplied by 1 because it is money being subtracted from the project using the above examples the company can calculate irr for each project in each term irr must be substituted with an educated guess because the only way to determine the best irr is through trial and error you can see how this can become manually tedious and prone to errors using these same values in a spreadsheet you can use this function | |
where | the following table shows the entries and the function in the spreadsheet enter the following in one cell irr a1 a6 and in another cell enter irr b1 b6 in the spreadsheet project a results in an irr of 17 and project b results in an irr of 5 given that the company s cost of capital is 10 management should proceed with project a and reject project b because the internal rate of return is higher than the project s cost | |
is using the irr rule the same as using the discounted cash flow method | yes using irr to obtain net present value is known as the discounted cash flow method of financial analysis the internal rate of return is the interest rate also known as the discount rate that will bring a series of cash flows positive and negative to a net present value of zero or to the current value of cash invested investors and firms use irr to evaluate whether an investment in a project can be justified | |
how is the irr rule used | the irr rule is used as a guideline for deciding whether to proceed with a project or investment the higher the projected irr on a project the higher the net cash flows to the company as long as the irr exceeds the cost of capital in this case a company would be well off to proceed with the project or investment but if the irr is lower than the cost of capital the rule declares that the best course of action is to forego the project or investment | |
do firms always follow the irr rule | the irr rule may not always be rigidly enforced generally the higher the irr the better however a company may prefer a project with a lower irr as long as it still exceeds the cost of capital that s because it has other intangible benefits such as contributing to a bigger strategic plan or impeding competition companies ultimately consider several factors when deciding whether to proceed with a project there may be factors that outweigh the irr rule the bottom lineit s important to weigh all your options and determine if a project or investment is worth the risk or reward this applies whether you re an individual investor or if you run a company one way to ascertain this is to follow the internal rate of return rule this rule states that you should only take on a new venture if its irr exceeds the breakeven point if it s lower you may want to reconsider whether it s worth the investment | |
what is irrational exuberance | irrational exuberance refers to investor enthusiasm that drives asset prices higher than those assets fundamentals justify the term was popularized by former fed chair alan greenspan in a 1996 speech the challenge of central banking in a democratic society 1 the speech was given near the beginning of the 1990s dot com bubble a textbook example of irrational exuberance breaking down irrational exuberanceirrational exuberance is widespread and undue economic optimism when investors start believing that the rise in prices in the recent past predicts the future they are acting as if there is no uncertainty in the market causing a positive feedback loop of ever higher prices it is believed to be a problem because it can give rise to bubbles in asset prices but when the ultimately bubble bursts investors quickly turn to panic selling sometimes selling their assets for less than they re worth based on fundamentals the panic that follows a bubble can spread to other asset classes and can even cause a recession the investors who get hit the hardest the ones who are still all in just before the correction are the overconfident ones who are sure that the bull run will last forever trusting that a bull won t turn on you is a sure way to get yourself gored alan greenspan raised the question of whether central banks should address irrational exuberance via a preemptive tight monetary policy he believed that central should raise interest rates when it appears that a speculative bubble is beginning to take shape example the late 1990 s dotcom bubblefed chair alan greenspan warned the markets about their irrational exuberance on december 5 1996 1 but he did not tighten monetary policy until the spring of 2000 after banks and brokerages had used the excess liquidity the fed created in advance of the y2k bug to fund internet stocks having poured gasoline on the fire greenspan had no choice but to burst the bubble the stock market crash that followed erased more than four years of gains in the tech heavy nasdaq composite index and wiped out many billions of dollars in market capitalization image by sabrina jiang investopedia 2021irrational exuberance the bookirrational exuberance is also the name of a 2000 book authored by economist robert shiller the book analyzes the broader stock market boom that lasted from 1982 through the dotcom years shiller s book presents 12 factors that created this boom and suggests policy changes for better managing irrational exuberance the book s second edition published in 2005 warns of the housing bubble burst which ended up occurring three years later in 2008 and led to the great recession 2 | |
what is an irrevocable beneficiary | an irrevocable beneficiary is a person or entity designated to receive the assets in a life insurance policy or a segregated fund contract what is irrevocable is the beneficiary status you can t choose on your own to change the beneficiary or the terms of the policy and you can t cancel the policy without the beneficiary s consent the beneficiary must agree to any and all changes in the rights to compensation from these entities understanding an irrevocable beneficiaryan irrevocable beneficiary has certain guaranteed rights to assets held in the policy or fund it s a more ironclad status than that of a revocable beneficiary whose right to assets can be denied or amended under certain circumstances with a life insurance policy the policyholder may designate either an irrevocable or revocable beneficiary to receive a payout in the event of the insured s death if someone is listed as an irrevocable beneficiary then denial of income from the policy after the death of the insured is not possible nor are any changes made to policy payout terms unless the beneficiary agrees to them for example a spouse who is an irrevocable beneficiary has the right to a policy payout even after a divorce the ex spouse must agree to changes in the policy before or after the death of the insured even the insured cannot change the status of an irrevocable beneficiary once they are named irrevocable beneficiaries also have to be notified if either the policy lapses or an attempt is made to cancel it in some states an irrevocable beneficiary has the right to veto any changes to an insurance policy including cancellation in other states they may only challenge items that directly affect them such as a payout advantages of an irrevocable beneficiarythe main advantage to naming an irrevocable beneficiary is that it ensures that money goes where you want it to go difficult to change during your life and virtually impossible to alter after your death it s for the bequests that you re 100 sure of and don t want to have to worry about keeping up to date children are often named irrevocable beneficiaries if a parent wanted to guarantee money to a child then the parent could designate that child as an irrevocable beneficiary thus ensuring the child will receive death benefits from the life insurance policy or segregated fund contract a parent might also make their spouse an irrevocable beneficiary to ensure that they have the means to support their offspring properly and not be dependent on someone else as a way to safeguard an inheritance making a beneficiary irrevocable can be especially important in this era of multiple marriages and blended families a stepparent can t cut off a child from a previous marriage or alter or challenge a policy after the death of the insured in case of a messy divorce naming a child rather than a spouse as the policy s irrevocable beneficiary could be preferable a beneficiary designation means that the funds in question don t have to go through probate so the recipient gets them faster irrevocable trustsbeneficiaries can protect assets in other ways a beneficiary designation overrides any sort of bequest made in a will and it doesn t have to go through probate the recipient will get funds faster this way irrevocable beneficiaries can also play a role in estate planning if you name a beneficiary on a life insurance policy and then put that policy in an irrevocable life insurance trust ilit the proceeds are then considered removed from your estate thus avoiding potential estate and gift taxes after your death 1 an appointed trustee can supervise the trust and distribute the assets which can be helpful in the case of irresponsible beneficiaries or when the beneficiary is a minor although irrevocable beneficiaries are pretty well shielded to begin with irrevocable trusts offer an additional layer of protection against legal challenges a beneficiary can t be sued by a creditor for these funds because the money is owned by the trust not the individual while the beneficiary doesn t own the money until the payout disadvantages of an irrevocable beneficiarythe primary disadvantage of having an irrevocable beneficiary is inflexibility you can t make any changes without the beneficiary s consent life has a way of surprising us so you need to be very sure that circumstances won t make you regret your choice as to irrevocable trusts an additional disadvantage is that you lose control of the assets in the trust ceding that control to a trustee if you suddenly need to access the funds due to an emergency you don t have it irrevocable beneficiaries and divorcesa policyholder can be ordered by a court to designate their ex spouse as a designated beneficiary most often this is seen in cases where there are dependent children child support or alimony involved in such a case the ex spouse can work with a divorce lawyer to persuade a court to make the policyholder designate the ex spouse as an irrevocable beneficiary to secure child support however the court can also have the policy amended if it s deemed that the payout is excessive in regard to what is needed to support the child or at a time when the children are no longer seen as dependents it s important to note however that state law ultimately decides the rights of beneficiaries to an insurance policy whether they are revocable or irrevocable beneficiaries policyholders should be clear with any beneficiary as to what the terms and conditions of a life insurance policy will be | |
how often should i review my beneficiaries | some financial planners including insurance companies themselves recommend that you review your beneficiaries annually that might be unnecessary especially if you have named irrevocable beneficiaries however whenever a major life change occurs marriage divorce the birth of a child or death you definitely should look over your beneficiaries | |
is an irrevocable beneficiary a primary beneficiary | irrevocable beneficiaries will always be primary beneficiaries they take priority over revocable beneficiaries forcing those others into secondary or tertiary status it would be extremely rare for an irrevocable beneficiary to take second place | |
how can i remove an irrevocable beneficiary | you can t without difficulty the point of irrevocable beneficiary status is its permanency generally speaking an irrevocable beneficiary can only be removed if the beneficiary agrees to be displaced voluntarily surrendering their status | |
what is an irrevocable letter of credit iloc | an irrevocable letter of credit iloc is an official correspondence from a bank that guarantees payment for goods or services being purchased by the individual or entity referred to as the applicant that requests the letter of credit from an issuing bank an irrevocable letter of credit cannot be canceled nor in any way modified except with the explicit agreement of all parties involved the buyer the seller and the issuing bank for example the issuing bank does not have the authority by itself to change any of the terms of an iloc once it is issued understanding irrevocable letters of credita letter of credit is issued by a commercial bank guaranteeing that a buyer s payment to a seller will be received on time and for the correct amount in the event that the buyer is unable to make a payment on the purchase the bank will be required to cover the full or remaining amount of the purchase due to the nature of international dealings including factors such as distance differing laws in each country and difficulty in knowing each party personally the use of letters of credit has become a very important aspect of international trade although an iloc is irrevocable while it is in force generally the time period during which a proposed transaction is expected to be completed an iloc expires at a specified point in time which is noted in the letter of credit 1iloc specificationsirrevocable letters of credit are official bank correspondence transferred and authenticated through the society for worldwide interbank financial telecommunications swift banking system this is a global setup for facilitating financial transactions between banks or other financial institutions and an iloc is transmitted as mt700 message type 700 2an iloc provides greater security of payment to the beneficiary of the letter who is commonly the seller in a transaction ilocs are frequently sought for large construction projects because they are not subject to claims of preference in the event of a bankruptcy ilocs are most commonly used to facilitate international trade because of the additional credit risk involved when two parties unfamiliar with each other are transacting business across national borders an iloc assures the seller of receiving payment because it is a guarantee by the issuing bank the buyer s bank that it will make payment in the event the buyer fails to do so by providing the seller with an assurance of payment an iloc also assists the buyer in arranging a transaction that the seller might otherwise be reluctant to make | |
how an iloc works | an iloc is a means of facilitating a transaction between a buyer and seller with the assistance of their respective banks the buyer requests an iloc from his bank which is then sent to the seller s bank in addition to providing credit risk protection an iloc typically also specifies important details of the transaction such as price payment terms and time and place for delivery of goods in the event the buyer fails to make payment as agreed the buyer s bank makes payment to the seller s bank which in turn renders payment to the seller the beneficiary of the iloc ilocs can also be either confirmed or unconfirmed a confirmed iloc offers additional risk protection for the seller by providing a guarantee of payment from both the buyer s bank and the seller s bank with an unconfirmed iloc the seller s bank has no liability for payment and essentially serves only as a go between to transfer payment to the seller from the buyer s bank an iloc can be reversible and amended but every party involved must agree to the change contents of an iloceach irrevocable letter of credit may address a unique creditor or situation generally speaking all irrevocable letters of credit will contain roughly the same information this information includes but is not limited to 1 | |
how to obtain an iloc | using an iloc as the form of payment requires both the buyer s and seller s consent prior to obtaining verify that both parties are prepared to proceed with this financial instrument and that they are aware of all of the letter s terms and conditions in many cases legal counsel may be hired to make sure the terms are accurate and clear | |
when pursing an iloc consider opting for a reputable bank with knowledge in iloc transactions and global trade various factors that may impact your ability to receive and trust in the iloc process include the bank s financial stability global reach and credit handling experience in many ways the iloc is not only a reflection on the buyer or applicant but a judgement on the validity of the issuing bank if applicable ensure the letter is drafted in compliance with international trade laws | banks often have an approval process in which they intake iloc details such the desired iloc amount beneficiary information expiry date required documents and any specific terms and conditions this information is evaluated and an assessment is made not only on the transaction but on the creditworthiness of the requestor once approved the letter is prepared once issued carefully check the iloc to make sure it appropriately represents the terms and circumstances agreed upon to prevent issues throughout the payment process any discrepancies or errors should be brought up right away with the issuing bank keep an eye on the iloc s expiration date to make sure that all required documentation is provided and payment is requested within the allotted time limit the letter could become null and void if this is not done the hidden value of an iloc is the fact that it is often issued by a federally insured financial institution this level of protection is often unachievable by a seller on its own alternatives to an ilocin many cases the buyer or applicant may be able to use an alternative to an irrevocable letter of credit sometimes the buyer pays the supplier in full before receiving the goods or services as it requires a sizable upfront payment it may be less advantageous for the buyer while providing the seller with a high level of protection when there is a cash in advance requirement | |
when a transaction is conducted using an open account both the buyer and the seller agree to postpone payment until the product or service has been received 3 this approach is excellent for established long term relationships because it is founded on mutual trust payment depends on the buyer s desire to pay hence the risk to the seller is larger | in a documentary collection the buyer and seller exchange paperwork while also paying each other using a bank 4 in contrast to letters of credit this form of e banks serve as mediators but do not guarantee payments instead they help with the document exchange and obtain money from the buyer on the seller s behalf bank guarantees are a type of assurance that a bank gives to a seller on behalf of a buyer it guarantees the seller that the bank will compensate the seller up to a certain sum in the case of a default or non performance by the buyer bank guarantees such as payment guarantees performance guarantees or bid bonds can be customized to fulfill particular needs last some entail the use of a dependable third party agent via escrow services to hold the funds until specific requirements are completed once the buyer has affirmed satisfaction with the products or services they received the money is given to the seller escrow services give both the buyer and the seller a measure of security though the transaction must be completed by one party prior to the other party following suit example of an ilocthe general services administration of the united states government provides the following example of an iloc after specific information is provided the following confirmation may be added and signed by the issuing bank note that in many cases this format is acceptable and can be used for a variety of types of transactions it may be that a specific template for an iloc can be used with specific fields input or relevant bits of data added this iloc example outlines the terms of expiration prevailing rules it may be subject to and signature blocks required by different parties | |
what is the role of the issuing bank in an irrevocable letter of credit | the issuing bank is the financial institution that issues the iloc on behalf of the buyer it undertakes the obligation to pay the beneficiary upon presentation of compliant documents the issuing bank s creditworthiness and reputation are crucial factors influencing the acceptability of the iloc | |
what are the benefits of using an irrevocable letter of credit for buyers | buyers benefit from the assurance that payment will only be made upon proper documentation and compliance an iloc reduces the risk of non performance by the seller and provides a level of security in international trade transactions | |
what are the benefits of using an irrevocable letter of credit for sellers | sellers benefit from the payment guarantee provided by the issuing bank the iloc assures them that upon fulfilling the specified requirements they will receive payment from the bank mitigating the risk of non payment or delayed payment can an irrevocable letter of credit be amended yes an iloc can be amended if both the buyer and the beneficiary agree to the changes amendments can modify the iloc s terms extend the expiry date or adjust other conditions all parties involved including the issuing bank need to agree and endorse the amendment the bottom linean irrevocable letter of credit is a financial instrument used in international trade to ensure payment security for sellers and provide assurance to buyers it is issued by a bank on behalf of the buyer guaranteeing that the seller will receive payment upon complying with the specified terms and conditions the iloc cannot be canceled or modified without the consent of all parties involved reducing the risk of non payment or non performance | |
what is an irrevocable trust | the purpose of an irrevocable trust is to move the assets from the grantor s control and name to that of the beneficiary this reduces the value of the grantor s estate in regard to estate taxes and protects the assets from creditors irrevocable trusts cannot be modified amended or terminated without the permission of the grantor s beneficiary or by the order of a court the exact rules can vary by state the grantor having effectively transferred all ownership of assets into the trust legally removes all of their rights of ownership to the assets and the trust irrevocable trusts are generally set up to minimize estate taxes access government benefits and protect assets this is in contrast to a revocable trust which allows the grantor to modify the trust but loses certain benefits such as creditor protection investopedia mira norian | |
how an irrevocable trust works | irrevocable trusts are primarily set up for estate and tax considerations that s because it removes all incidents of ownership removing the trust s assets from the grantor s taxable estate it also relieves the grantor of the tax liability on the income generated by the assets 1 while the tax rules vary between jurisdictions the grantor can t receive these benefits if they are the trustee the assets held in the trust can include but are not limited to a business investment assets cash and life insurance policies trusts have an important place in estate and legacy planning but there is a downside the cost setting up any type of trust can be complicated enough that an attorney is necessary and this means that people may end up spending a few thousand dollars or more in attorney fees to set them up irrevocable trusts are especially useful to individuals who work in professions that may make them vulnerable to lawsuits such as doctors or attorneys once an asset is transferred to such a trust it is owned by the trust for the benefit of its beneficiaries therefore it is safe from legal judgments and creditors since the trust will not be a party to any lawsuit today s irrevocable trusts come with many provisions that were not commonly found in older versions of these instruments these additions allow for much greater flexibility in trust management and distribution of assets provisions such as decanting which allows a trust to be moved into a newer trust with more modern or advantageous provisions can ensure that the trust assets will be managed effectively 2 other features that allow the trust to change its state of domicile can provide additional tax savings or other benefits although they are commonly associated with the very wealthy trusts are an important piece of estate planning for anyone regardless of income status types of irrevocable trustsirrevocable trusts come in two forms living trusts and testamentary trusts a living trust which is also known as an inter vivos latin for between the living trust is originated and funded by an individual during their lifetime some living trust examples are testamentary trusts on the other hand are irrevocable by design that s because they are created after the death of their creator and are funded from the deceased s estate according to the terms of their will 3 the sole way to make changes to a testamentary trust or cancel it is to alter the will of the trust s creator before they die irrevocable trust usesan irrevocable trust has a grantor a trustee and a beneficiary or beneficiaries once the grantor places an asset in an irrevocable trust it is a gift to the trust and the grantor cannot revoke it the grantor can dictate the terms rules and uses of the trust assets with the consent of the trustee and the beneficiary 45irrevocable trusts can have many applications in planning for the preservation and distribution of an estate including an irrevocable trust is a more complex legal arrangement than a revocable trust because there could be current income tax and future estate tax implications when using an irrevocable trust seek a tax or estate attorney s guidance irrevocable trusts vs revocable trustsrevocable trusts may be amended or canceled at any time as long as their creator is mentally competent they do offer the benefit of allowing their creator to cancel them and reclaim property held by the trust at any time before death however such trusts do not offer the same protection against legal action or estate taxes as irrevocable trusts 8 | |
when using revocable trusts government entities will consider that any property held in one still belongs to the trust s creator and therefore may be included in their estate for tax purposes or when qualifying for government benefits 97 once a revocable trust s creator dies the trust becomes irrevocable 5 | secure act rulesthe setting every community up for retirement enhancement secure act changes some of the tax saving benefits of see through trusts previously certain non spousal beneficiaries of retirement accounts that had been placed in an irrevocable trust could take their distributions over their life expectancy however under the secure act rules some beneficiaries may find they must take a full distribution by the end of the tenth calendar year following the year of the grantor s death 10again because the tax implications of this can be challenging and can change with the passage of new laws it s important to consult a tax or estate attorney s guidance when using an irrevocable trust | |
how does an irrevocable trust work | an irrevocable trust cannot be changed or modified without the beneficiary s permission essentially an irrevocable trust removes certain assets from a grantor s taxable estate and these incidents of ownership are transferred to a trust a grantor may choose this structure to relieve assets in the trust from tax liabilities along with other financial benefits | |
what is the difference between an irrevocable and a revocable trust | first irrevocable trusts cannot be changed or altered among the primary reasons they are used is for tax reasons where the assets in the trust are not taxed on income generated in the trust along with taxes in the event of the benefactor s death 1 revocable trusts on the other hand can change beneficiaries may be removed and stipulations may be modified along with other terms and management of the trust however when the owner of the trust dies the assets held in the trust realize state and federal estate taxes 118who controls an irrevocable trust under an irrevocable trust legal ownership of the trust is held by a trustee at the same time the grantor gives up certain rights to the trust once an irrevocable trust is established the grantor cannot control or change the assets once they have been transferred into the trust without the beneficiary s permission these assets can include a business property financial assets or a life insurance policy the bottom lineirrevocable trusts can be very useful in estate planning to minimize estate taxes and protect assets there are two different types living trusts created and funded by an individual during their lifetime and testamentary trusts which are created after the death of their creator according to the terms of their will irrevocable trusts are more complex arrangements than revocable trusts and may have current and future tax implications so it s best to consult a tax or estate attorney if you re contemplating setting one up | |
what is form 4868 application for automatic extension of time to file u s individual income tax return | form 4868 application for automatic extension of time to file u s individual income tax return is an internal revenue service irs form for individuals who wish to extend the amount of time they have to file their tax returns any extension your tax returns granted by the irs applies only to the paperwork you must send in the amount you expect to owe by the deadline 1who can file form 4868 application for automatic extension of time to file u s individual income tax return a u s citizen or resident who wants an automatic extension to file a u s individual income tax return can file this form taxpayers in the country receive a maximum six month extension u s citizens or residents who are out of the country on the due date are allowed two extra months without form 4868 to file their returns and pay any amount due without requesting an extension filing this form will grant an additional four months to the taxpayer living out of the country 2 the irs qualifies those out of the country as | |
how to file form 4868 application for automatic extension of time to file u s individual income tax return | this short form should be completed with the individual or married couple s names address social security numbers an estimate of total tax liability for the year total payments already made the remaining amount due and the amount being paid if any 2the form should be filed by the tax deadline date 2filing form 4868 does not allow late payment all payments must be made by the tax deadline date or interest and penalties will be imposed 2download form 4868 application for automatic extension of time to file u s individual income tax returnclick this link to download a copy of form 4868 application for automatic extension of time to file u s individual income tax return | |
what is the irs publication 15 | irs publication 15 employer s tax guide is a document published by the internal revenue service detailing an employer s responsibilities for filing and reporting tax information the document covers the withholding depositing reporting paying and correcting of taxes for employees although not for the corporation itself irs publication 15 is also referred to as circular e 1 understanding irs publication 15irs publication 15 is used to determine federal income tax but not state or local taxes the tax guide details federal income tax amounts for payroll withholdings including medicare and social security amounts 2 employers should refer to their state s tax rules to ensure that proper state income tax amounts are withheld from employees paychecks extra tax information is also available in irs publication 15 a 3 previously one of the most important features contained in the employer s tax guide was the percentage method tables and wage bracket method tables for income tax withholding 4 however for the 2020 employer s tax guide these withholding tables have been removed these tables and the employer instructions on how to figure employee withholding are now included in publication 15 t federal income tax withholding methods the irs also provides an assistant on their website called the income tax withholding assistant for employers to help employers figure out employee withholding 5 these wage bracket tables help an employer to know exactly which percentage of their employees payroll they should be withholding for taxes every pay period in order to comply with federal tax regulations in order to determine the tax withholding amount an employee must also file a w 4 form which can be updated as situations change in the employee s life such as a new family member 6 in the event that an employee does not file a w 4 the employer s tax guide also details what amount to withhold instead 7 | |
how to use irs publication 15 | the easiest way to access irs publication 15 is typically online through the irs website the employer s tax guide contains any updates and new legislative changes pertinent to employers along with the following sections | |
what is irs publication 463 travel gift and car expenses | irs publication 463 travel gift and car expenses explains the expenses associated with business activities that an individual taxpayer can deduct to reduce their overall taxable income the document primarily focuses on expenses for sole proprietors reporting business income on schedule c it also applies to armed forces reservists qualified performing artists fee basis state or local government officials and employees with disability impairment related work expenses who file business expense deductions on form 2106 1publication 463 is not necessarily for partnerships corporations and trusts these businesses though should refer to the instructions for their required tax forms along with irs publication 535 2publication 463 does provide some guidance for self employment expense reporting on schedule c though publication 535 is also a central resource in general there is some overlap on allowable individual business expense deductions for both employees and the self employed though they report business expense deductions on two entirely different forms schedule a vs schedule c 34understanding irs publication 463 travel gift and car expensesirs publication 463 is published by the u s internal revenue service irs and updated periodically on the irs website it covers a vast amount of information pertaining to expense deductions the deductions authorized by publication 463 are for necessary and ordinary business expenses incurred by an individual taxpayer in the course of doing business the irs defines these as expenses that are both common in a particular industry and helpful to the practice of that business 2these expenses do not have to be required for the conduct of that business in general an individual need only determines expenses that were incurred as part of business activity and not expenses associated with personal use 2irs publication 463 is divided into six main chapters which include the following the tax cuts and jobs act tcja began to take force for the tax year 2018 and will run through 2025 6 the tcja made substantial changes in the area of schedule a expenses generally eliminating most schedule a expense deductions however the tcja integrated a schedule a standard deduction of 12 000 the 12 000 standard deduction also eliminated the need for most taxpayers to itemize schedule a deductions of any kind including business expense deductions at all 7reimbursementsan individual incurring expenses in the course of their employment will typically obtain the greatest advantage by first seeking reimbursement from their employer this can help to eliminate any need for expense deduction considerations publication 463 addresses expenses for which an employee does not receive reimbursement from an employer if an employee receives reimbursement for expenses it is not generally considered taxable income 8travelin most cases travel expenses will be reimbursed by an employer if travel expenses are not reimbursed a taxpayer can generally only deduct business travel expenses associated with travel away from their tax home some of the most basic expenses that are deductible away from home include transportation lodging and meals 9meals and entertainmentmeals and entertainment are defined separately in general any entertainment expenses paid for the purpose of entertainment amusement or recreation are nondeductible as a business expense this includes any expenses for facilities dues and memberships 10meals are generally deductible for up to 50 of the total cost meals should not be considered lavish or extravagant meals can be expenses at entertainment events if purchased separately 10giftsgifts can generally be deducted as an expense for up to 25 per gift gifts of entertainment cannot be deducted 11transportationtaxpayers generally cannot deduct transportation expenses to a regular work location some deductions can apply for alternative work locations 12expenses for a vehicle used for business will generally be calculated using either the standard mileage expensing method or actual cost expensing the standard mileage method multiplies 58 5 cents per mile usage for 2022 13 the actual cost method includes all actual costs such as gas oil registration repairs and car payments 14w 2 employees generally cannot deduct vehicle expenses on a schedule a therefore alternatively seeking employer reimbursement agreements can be advantageous self employed taxpayers can deduct vehicle expenses from gross income when calculating net income on a schedule c 15recordkeeping and reportingthe irs suggests that taxpayers keep detailed records of expense deductions 16 taxpayers with w 2 wages will report wages on line 1 of the 1040 form if a taxpayer has multiple w 2s the sum of w 2 wages is reported on line 1 expense deductions associated with w 2 wages can be itemized on a schedule a if greater than the standard deduction if schedule a expense deductions are not greater the taxpayer gets the standard deduction of 13 850 for tax year 2023 for married couples filing jointly the standard deduction is 27 700 17 schedule a standard or itemized deductions are reported on line 12 of the 1040 and reduce taxable income 1819if a taxpayer is self employed with 1099 wages all 1099 wages are reported on schedule c 20 allowable business expenses pertaining to 1099 income are deducted to arrive at the adjusted gross income which is reported on line 11 of 1040 form 2122 for more on schedule c business expenses also see publication 535 23disclaimer individuals should consult irs publication 463 or a tax professional for details pertaining to their own individual business deductions this article provides general information that may or may not pertain to individual situations | |
what is irs publication 519 | irs publication 519 is the u s tax guide for aliens a document the internal revenue service irs publishes that details the tax procedures for aliens individuals that are not citizens of the united states 1 not all aliens are subject to u s taxes resident aliens those who have been in the country for a defined period are subject to taxation on their worldwide income just as citizens are non resident aliens are only taxed on income they earn within the u s as well as on certain types of international income 2 understanding irs publication 519the most important aspect of irs publication 519 is its definition of a taxpayer s status as either a non resident alien or a resident alien using the substantial presence test or the green card test as the applicable tax rules are based on that status taxpayers may also be considered as dual status aliens and should also determine the tax status of any spouse 3 the substantial presence test measures residency by physical presence in the u s to meet this test an individual must reside in the u s on at least the green card test states that an individual is a resident for u s federal tax purposes if they are a lawful permanent resident of the u s at any time during the calendar year a person becomes a lawful permanent resident if they have been given the privilege according to the immigration laws of residing permanently in the u s as an immigrant generally by being issued an alien registration card also known as a green card by the u s citizenship and immigration services 5 if an individual qualifies as both resident and non resident in the same year they have what is referred to as dual status a married individual may also have a choice of treating their non resident spouse as a resident alien 6 taxation of non resident incomeindividuals determined to be non resident aliens are generally subject to two different tax rates on their u s income one for effectively connected income and one for fixed or determinable annual or periodic fdap income effectively connected income is earned from running a u s business or performing personal services and is taxed at the same graduated rates as a u s citizen fdap is considered passive income and is taxed at a flat 30 rate 7 non resident aliens must file tax returns using form 1040nr 8 for non resident aliens tax treaties with foreign countries may reduce or eliminate u s tax on various types of personal services and other income such as pensions interest dividends royalties and capital gains 9 | |
what is irs publication 525 | publication 525 taxable and nontaxable income is a document published by the internal revenue service irs detailing what types of income taxpayers should consider taxable or nontaxable when filing tax returns 1 a taxpayer s income can come from a number of sources other than regular employment 2 income can be in the form of money property and services unless a type of income is specifically exempted from taxation by law it will be considered taxable income understanding irs publication 525publication 525 outlines how employees are to treat income from retirement plans stock options and fringe benefits and how to report their income from business partnerships real estate investments and disability pensions it also describes how certain employee types such as military personnel and clergy should report their income publication 525 is updated regularly to reflect any changes in tax code or regulations updates may include things such as disaster tax relief for residents recovering from natural disasters such as hurricanes or wildfires 3 taxable income includes any salaries wages and tips however there are many other categories of taxable income 4 income that is available to a taxpayer whether or not that person actually possesses it is considered taxable for example a paycheck that has been handed to a taxpayer before the end of the tax year is considered taxable income even if the person has not cashed that check by the year s end likewise income that is received by an agent of a taxpayer on their behalf is considered taxable even if that third party has not yet handed the money over to the taxpayer prepaid income is also considered taxable for example if a contractor is paid 10 000 to begin a construction job on a house but fails to complete the job before the end of the tax year that 10 000 is still taxable since the contractor received the payment 5 grants are also considered taxable income in addition to interest earned through most investment vehicles fringe benefits are also considered taxable income 2 non taxable income includes welfare payments healthcare benefits inheritances and gifts child support payments cash rebates on items purchased and money reimbursed from qualifying adoptions are also not considered taxable income by the irs 6 if a person receives money through a life insurance policy due to the death of the policyholder that income is considered non taxable however if that person simply cashes in that life insurance policy income received through cashing in the policy may be taxable 7 some scholarships are not taxable though what the scholarship money is used for can determine whether or not the recipient must pay taxes on it 8 | |
what is irs publication 527 | irs publication 527 residential rental property is a document published by the internal revenue service irs that provides tax information for individuals who own residential properties that are rented out for income typically all income earned from rental properties is reported to the irs though the type of rental activity will alter which sections of the tax form that income is reported irs publication 527 outlines how to account for property depreciation what types of deductions can be made on rental income as well as what to do if only part of a property is rented | |
what is publication 535 business expenses | publication 535 business expenses is an internal revenue service irs document that discusses common business expenses and explains the rules for deducting business expenses the guide explains what is and is not deductible and lists some of the most common business deductions for a business expense to be deductible it must be both ordinary and necessary ordinary expenses are common in a particular industry necessary expenses are either helpful or essential to conducting business business owners deduct expenses to bring down their total amount of taxable income 1understanding publication 535 business expensespublication 535 business expenses is the definitive source on what expenses are allowable deductions the guide also provides guidance on which records and receipts to keep when deducting business expenses to be fully compliant business expenses are separate and distinct from the cost of goods personal expenses and capital expenses these types of expenses cannot also count as business expenses certain types of business expenses such as capital expenses are treated differently than ordinary and necessary expenses these types of expenses often require the taxpayer to use different tax forms ultimately the accounting method employed by the taxpayer cash or accrual determines when and how expenses can be deducted using the cash method taxpayers can only deduct expenses after they are paid with the accrual method you can deduct expenses when the all events test has been satisfied or when economic performance occurs publication 535 provides specific guidance for each of these accounting methods 1irs publications are informational booklets written by the internal revenue service that give taxpayers detailed guidance on tax issues there are irs publications on a wide range of topics related to filing one s taxes some of these topics include medical and dental expenses publication 502 bankruptcy publication 908 filing your taxes as a person with a disability publication 907 how to depreciate property publication 946 tax benefits for education publication 970 reporting tip income publication 531 and many more 2most common business expensesto find the complete list of business expenses that can be deducted consult publication 334 here are some of the most common expenses businesses can deduct businesses should be extremely mindful when deducting business expenses exaggerating expenses or attempting to deduct unallowable expenses such as personal expenses can result in serious penalties plus interest on the amount of taxes you owe in some serious cases the irs may even pursue criminal charges for tax fraud a publication that is closely related to publication 535 is publication 334 tax guide for small business for individuals who use schedule c this publication is a reference for small business owners who are sole proprietors and also for statutory employees it provides information about calculating common business deductions business tax credits available to small businesses and other information pertinent to sole proprietors and statutory employees a sole proprietor is an individual who operates an unincorporated business with just one owner they pay personal income tax on the profits made from their small business statutory employees such as independent contractors are employees who work for a business but their employer is not required to withhold taxes from their earnings 3another guide that is relevant to publication 535 is publication 463 travel gift and car expenses this publication explains the expenses associated with business activities that an individual taxpayer can deduct to reduce their overall taxable income specifically travel entertainment gift and car expenses 4new rules under the tax cuts and jobs actin late 2017 the tax cuts and jobs act became law overhauling the u s tax code for the first time in decades this act affected the regulation of deductible business expenses some changes under the new law include the elimination of certain deductions for example entertainment expenses spent in the course of doing business payment for employee parking or other commuting expenses local lobbying costs and domestic production activities all cannot be deducted any longer another change involves rules allowing employees to deduct the cost of meals in company cafeterias while traveling for work the new tax code also includes a lower corporate tax rate so c corporations pay a lower amount of tax overall for smaller businesses the new rules usher in a deduction for people who earn income from pass through entities such as llcs and sole proprietorships 56 | |
how do you quality for business expense deduction | for a business expense to qualify as a deduction it must meet two criteria required by the irs the expense must be ordinary and necessary to the business an expense is considered ordinary if it is common and accepted in your industry an expense is considered necessary if it is helpful and appropriate for your business | |
what cannot be written as a business expense | non deductible business expenses are those not directly related to your business some examples of non deductible business expenses include meals and entertainment car payments and home office deductions | |
is it illegal to write off personal expenses as business expenses | because business expenses are tax deductible they can lower your taxable income and reduce the amount of tax you owe however personal expenses cannot be used as tax write offs against business income if you are caught doing this you will end up paying penalties and be charged interest on your unpaid taxes if the amounts are high enough it s possible the irs may take legal action against you the bottom lineirs publication 535 serves as a vital guide for businesses navigating deductible expenses from clarifying essential criteria to warning against non compliance the guide proves indispensable for efficient navigation of evolving tax regulations beyond serving as a roadmap for businesses the publication underscores the importance of strict adherence to irs guidelines cautioning against the exaggeration of expenses or the deduction of unallowable costs with penalties as potential consequences furthermore the guide addresses the impact of the tax cuts and jobs act on deductible business expenses making it an essential and comprehensive resource for businesses navigating the complexities of ever evolving tax regulations with efficiency and confidence | |
what is irs publication 550 | irs publication 550 is a document published by the internal revenue service irs that provides information on how investment income and expenses are to be treated when filing taxes irs publication 550 explains what investment expenses are deductible when gains and losses from the sale of investment property are to be reported and what type of investments are considered taxable 1 understanding irs publication 550investors who purchase u s property from a foreign individual or firm may be required to withhold income taxes in addition u s citizens must report income earned on foreign investments even if a form 1099 was not issued this is explained in more detail in irs publication 515 2 special tax rules apply to employees who exercise stock options more information is provided in irs publication 525 3 | |
what s in irs publication 550 | this is one of the agency s most complex topics covering information on the tax treatment of investment income and expenses it includes information on the tax treatment of investment income and expenses for individual shareholders of mutual funds or other regulated investment companies such as money market funds according to the irs 4 it also explains what investment income is taxable and what investment expenses are deductible it explains when and how to show these items on your tax return there s information on how to determine and report gains and losses on the disposition of investment property another key section regards property trades and tax shelters 4 the publication has a handy table that shows where to report various types of investment income on each type of return originally this included 1040 1040a and 1040ez however the latter two forms are no longer available interest income is covered in detail including money market funds certificates of deposit penalties for early withdrawal gifts for opening accounts interest on insurance dividends prepaid insurance premiums u s obligations interest on tax refunds installment sale proceeds interest on insurance contracts how to treat usurious interest interest on frozen deposits below market loans foreign interest u s savings bonds educational savings bonds bonds sold between interest dates u s treasury bills and notes state or local government obligations mortgage revenue bonds and original issue discount oid 5 treatment of dividends is covered including ordinary dividends the most common type of distribution from a corporation or a mutual fund qualified dividends are covered which are subject to the same 0 15 or 20 maximum tax rate that applies to net capital gain capital gain distributions which are paid or credited to your account by mutual funds and real estate investment trusts reits are covered in detail 6 | |
what is irs publication 590 individual retirement arrangements iras | irs publication 590 entitled individual retirement arrangements iras is an irs document that outlines rules for individual retirement accounts iras the document published by the internal revenue service provides information on how to set up an ira how to contribute to it how much may be contributed how to treat distributions and how to take tax deductions for contributions made to iras 1irs publication 590 also provides information on penalties that taxpayers might face if ira regulations are not followed properly 2understanding irs publication 590 individual retirement arrangements iras while irs publication 590 specifies individual retirement arrangements 3 that term is meant to broadly represent a wide variety of individual retirement accounts individual retirement annuities and other trusts or custodial accounts that act as a personal savings plan that provides tax advantages for setting aside money for retirement irs publication 590 has two parts part a covers contributions to individual retirement arrangements 1 and part b covers distributions from individual retirement arrangements 4 there are significant differences between the various retirement accounts covered in irs publication 590 including roth iras and traditional iras especially when it comes to the tax treatment of contributions the publication covers the following irs publication 590 individual retirement arrangements new itemsirs publication 590 often outlines new rules or provisions such as those that offer relief to disaster victims for example in the tax year 2017 it named a qualified disaster tax relief provision that covers tax favored withdrawals and repayments from certain retirement plans for taxpayers who suffered economic losses as a result of hurricane and tropical storm harvey as well as hurricanes irma and maria and the california wildfires 5other items for 2017 included in 2018 there were increases to the agi limits across the board as well as an extended rollover period for certain plan loan offsets and a disclosure disallowing recharacterization of conversions made in 2018 or later 7there are significant differences between the various retirement accounts covered in irs publication 590 including roth iras and traditional iras especially when it comes to the tax treatment of contributions 8 | |
what is irs publication 590 b | irs publication 590 b explains the tax implications of withdrawing money from any type of individual retirement account ira before or after retirement it specifies when you can t withdraw money without paying a penalty and when you must withdraw money the publication includes three chapters several appendixes and worksheets to assist the taxpayer publication 590 a covers the tax rules for contributing to retirement accounts understanding irs publication 590 bthere are several types of iras including the traditional ira and the roth ira the sep and the simple ira but the biggest distinction is between the traditional and the roth ira an ira distribution for higher education expenses or a first time home purchase isn t subject to the 10 early withdrawal penalty 2irs publication 590 b is organized to explain the different tax implications of the traditional and roth types of ira accounts chapters 1 and 2 of irs publication 590 b explain all the rules for the traditional ira and the roth ira respectively chapter 1 covers when you can withdraw money and at what age you must withdraw money it also includes penalties for early withdrawals from traditional iras chapter 3 covers permitted early withdrawals used to pay for damage caused by natural disasters as of the latest irs publication 590 b for 2023 tax returns a qualified disaster recovery distribution must meet certain criteria as described in the secure 2 0 act of 2022 section 331 of the latest secure act allows victims of a qualified natural disaster to withdraw up to 22 000 from their retirement account without penalty the withdrawal is treated as gross income over three years without penalty effective as of the passage of the bill all such distributions require repayment of the money to avoid a penalty later 3an introductory section includes a table clarifying the differences between traditional and roth iras rules for required distributions taxation of these accounts and regulations for filing form 8606 for non deductible iras this is the form that must be filed to report distributions from any type of ira a later section provides general information on getting help with tax related issues appendix a is a worksheet for determining your required minimum distribution rmd and appendix b contains a life expectancy table needed to calculate rmds penalties and exemptions in publication 590 bkeep an eye on the penalties detailed in publication 590 b and the exceptions to those penalties for example most early distributions trigger a 10 penalty the penalty goes up to 25 if money is withdrawn during the first two years of participation in a simple ira 4 however a withdrawal for qualified higher education expenses or first time home purchase isn t subject to the penalty other useful irs publicationsthe irs has numerous publications explaining the ins and outs of qualified retirement plans | |
what is irs publication 590 b used for | irs publication 590 b details the tax implications of taking money out of any type of ira before or after retirement it specifies when you can t withdraw money without paying a penalty and when you must withdraw money via required minimum distributions in retirement | |
how can i find out about changes since the last publication 590 b was published | the irs provides updates about related developments before a new version of publication 590 b is published on a web page titled about publication 590 b distributions from individual retirement arrangements iras these may include legislation enacted after the current edition was published | |
how long is irs publication 590 b | 2023 irs publication 590 b the latest edition available as of may 2024 has 69 pages it has three chapters and additional sections that provide information about the rules for the traditional ira and the roth ira permitted early withdrawals used to pay for damage caused by natural disasters rules for required distributions taxation of iras regulations for filing the form required to report distributions from any type of ira and more the bottom lineirs publication 590 b spells out the tax implications of withdrawing money from an ira before or after you retire the publication comprises three chapters several appendixes and worksheets to assist the taxpayer publication 590 a covers the tax rules for contributing to retirement accounts the publication also outlines the penalties for early withdrawal of ira funds and the exceptions to those penalties | |
what is irs publication 970 tax benefits for education | irs publication 970 is a document published by the internal revenue service irs that provides information on tax benefits available to students and families saving or paying for college it explains the tax treatment for the most common forms of college funding such as scholarships fellowships and grants and tuition reductions 1publication 970 outlines two tax credits the american opportunity tax credit and the lifetime learning credit in addition irs publication 970 outlines 9 tax benefits that students and their families can claim in order to reduce the income tax they owe 2these benefits include the deductibility of interest paid on student loan debt tax free treatment of canceled student loan debt the deductibility of tuition and fees contributions to tax advantaged coverdell education savings accounts esas and participation in a qualified tuition program further tax incentives to education spending outlined in irs publication 970 include the ability to cash in savings bonds tax free if the proceeds are used for education the ability to take penalty free withdrawals from retirement savings accounts and the deductibility of education expenses from business income 3other relevant formstaxpayers using education credits and or deductions will also need to have received form 1098 t tuition statement which includes the educational institution s employer identification number ein they will also have to file form 8863 to claim the american opportunity and lifetime learning credits 4 under certain conditions a student may still claim the credit if form 1098 t has not been received 5irs publication 970 and the federal budgettax breaks given out for specific purposes are sometimes called tax expenditures by tax policy experts 6 irs publication 970 is a detailed overview of the tax expenditures congress has allocated to promote the education and training of americans tax credits and deductions for post secondary education expenses reduced 2021 federal tax revenues by an estimated 9 3 billion however the figure is expected to increase substantially in 2022 to 14 6 billion another expensive provision of the tax code related to education is the deductibility of student loan interest this tax break reduced taxes by an estimated 2 1 billion in 2021 and is predicted to reduce 2022 revenue by 2 3 billion 7irs publication 970 and updatesthe tax liability of america s college students was widely discussed during the debate over tax reform enacted by congress in 2017 initial versions of the bill would have eliminated the ability of many students to receive tuition waivers tax free this issue is of particular importance to graduate students many of whom can only afford to attend school thanks to tuition waivers 8 after students demonstrated against the proposed change the bill was amended to keep tuition waivers tax free 9 the bipartisan budget act enacted feb 9 2018 extended the date for many benefits in the tax law and added a few new ones 10publication 970 is updated regularly to reflect any changes in the tax code or tax regulations download irs publication 970 tax benefits for educationall revisions of publication 970 are available on the irs website as well as recent developments 11 | |
what was publication 972 child tax credit | publication 972 was a document published by the internal revenue service irs that provided guidance on determining the exact amount of the child tax credit that taxpayers can claim 1it was used for information about the child tax credit from tax years 2020 and earlier for tax years 2021 and later you will no longer use publication 972 to figure your child tax credit and credit for other dependents instead use schedule 8812 in conjunction with form 1040 2the document included an update on any changes in the tax credit for the year a worksheet to help taxpayers calculate their child credits in certain unusual cases as well as instructions for determining the child tax credit to claim understanding publication 972 child tax creditmost parents foster parents and guardians of children under age 17 can use the child tax credit to lower their taxable income for the year this benefit can be claimed using form 1040 or 1040nr 4irs publication 972 was used in tax years 2020 and prior to determine if a child was eligible according to the document a qualifying child or dependent must have been publication 972 also disclosed how much credit a taxpayer can receive in the 2020 tax year the maximum amount that could be requested for a qualifying child was 2 000 1 that limit has been in effect since 2018 when the irs doubled the 1 000 credit available on 2017 tax returns 5irs publication 972 provided a worksheet that can be used to determine the amount of child tax credit that can be claimed publication 972 provided guidance on potentially getting a portion of any unused credit refunded too following changes to the law in 2017 the refundable portion of the child tax credit known as the additional child tax credit actc increased to 1 400 from 1 000 this meant low income taxpayers whose credits exceed their tax liabilities could get refunded up to 1 400 6the irs allows families with an annual income of more than 2 500 to request a refund using the actc 7 to make a claim for a refund filers must complete schedule 8812 8special considerationsthe child tax credit has limits and is not available to taxpayers at certain high income levels 6in 2020 the tax credit was phased out for this with an adjusted gross income agi of 200 000 or 400 000 if married filing jointly 7 | |
what is the is lm model | the is lm model which stands for investment saving is and liquidity preference money supply lm is a keynesian macroeconomic model that shows how the market for economic goods interacts with the loanable funds market or money market it is represented as a graph in which the is and lm curves intersect to show the short run equilibrium between interest rates and output understanding the is lm modelbritish economist john hicks first introduced the is lm model in 1937 not long after fellow british economist john maynard keynes published the general theory of employment interest and money in 1936 hicks model served as a formalized graphical representation of keynes theories though it is used mainly as a heuristic device today 123the three critical exogenous or external variables in the is lm model are liquidity investment and consumption according to the theory liquidity is determined by the size and velocity of the money supply the levels of investment and consumption are determined by the marginal decisions of individual actors 4the is lm graph examines the relationship between output or gross domestic product gdp and interest rates the entire economy is boiled down to just two markets output and money and their respective supply and demand characteristics push the economy toward an equilibrium point characteristics of the is lm graphthe is lm graph consists of two curves is and lm gdp is placed on the horizontal axis increasing to the right the interest rate makes up the vertical axis 5the is curve depicts the set of all levels of interest rates and output gdp at which total investment i equals total saving s at lower interest rates investment is higher which translates into more total output gdp so the is curve slopes downward and to the right 3the lm curve depicts the set of all levels of income gdp and interest rates at which money supply equals money liquidity demand the lm curve slopes upward because higher levels of income gdp induce increased demand to hold money balances for transactions which requires a higher interest rate to keep money supply and liquidity demand in equilibrium 5the intersection of the is and lm curves shows the equilibrium point of interest rates and output when money markets and the real economy are in balance 3 multiple scenarios or points in time may be represented by adding additional is and lm curves in some versions of the graph curves display limited convexity or concavity shifts in the position and shape of the is and lm curves representing changing preferences for liquidity investment and consumption alter the equilibrium levels of income and interest rates limitations of the is lm modelmany economists including many keynesians object to the is lm model for its simplistic and unrealistic assumptions about the macroeconomy it cannot account for simultaneous high unemployment and inflation in the economy it is also undercut by the change by central banks to using an interest rate rule rather than targeting the money supply 5even hicks later admitted that the model s flaws were fatal and it was probably best used as a classroom gadget to be superseded later on by something better 6 subsequent revisions have taken place for so called new or optimized is lm frameworks 5the model is a limited policy tool as it cannot explain how tax or spending policies should be formulated with any specificity this significantly limits its functional appeal it has very little to say about inflation rational expectations or international markets although later models do attempt to incorporate these ideas the model also ignores the formation of capital and labor productivity | |
is the is lm model actually used | the is lm model has limited use as a shortcut that enables quick decision making because it is too simplistic it is not useful for formulating tax or spending policies even its creator john hicks called it a classroom gadget and expected it to be eventually replaced by something more sophisticated | |
why does the lm curve slope upward | the lm curve slopes upward because a higher gross domestic product gdp causes greater demand to hold money for transactions this in turn raises interest rates so that money supply and liquidity can stay in equilibrium who developed the is lm model a british economist named john hicks developed the is lm model in 1936 basing it on theories published by another british economist john maynard keynes only a few months earlier the bottom linethe is lm model is a tool for looking at how the market for economic goods intersects with the loanable funds market it depicts the short term equilibrium point between interest rates and output with its three variables being liquidity investment and consumption because it is a highly simplistic device it is only useful when snap decisions must be made as it lacks the sophistication necessary for setting tax and spending policies | |
published by the international swaps and derivatives association isda an isda master agreement is a standardized contract for over the counter otc derivative transactions 1 it s the lingua franca of the derivatives world used extensively by financial institutions corporations and other market participants | the agreement provides prearranged terms conditions and forms of documentation including payment arrangements and schedule what happens if there s a default what counts as termination events and credit dealings the isda master agreement is standardized but has customized schedules and sometimes a credit support annex that can be adjusted by the parties | |
how an isda master agreement works | while futures and most options are fully standardized and traded on exchanges like the chicago mercantile exchange otc derivatives are just between two parties not through an exchange or intermediary risk managers must carefully oversee traders and ensure approved transactions are correctly managed when two parties enter a transaction they each receive a confirmation setting out details and references to the signed agreement the terms of the isda master agreement then cover the transaction 2the original isda master agreement was created to standardize these trades in 1985 it was revised in 1992 and again in 2002 here are the types of derivatives for which they are used the isda master agreement makes transaction closeout and netting easier since it bridges the gap between various standards used in different jurisdictions below is the data on global derivatives trading since 2019 the chart is telling about what kinds of derivatives are traded otc since equities commodities and credit derivatives popular exchange traded contracts are subsumed under other in the chart and forex and interest rate derivatives are far more at issue in these contracts most multinational banks have isda master agreements in place with one another these agreements usually cover all branches that are active in foreign exchange interest rate or options trading banks require corporate counterparties to sign an agreement to enter into swaps some also require agreements for foreign exchange transactions while the isda master agreement is standard its terms and conditions are amended and defined in its schedules the latter are negotiated to cover either the requirements of a specific hedging transaction or an ongoing trading relationship a credit support annex csa sometimes accompanies the master agreement the csa allows the two parties involved to mitigate their credit risk by stipulating the terms and conditions under which they re required to post collateral for each other isda master agreements are used by firms worldwide benefits of an isda master agreementthe most significant advantages of an isda master agreement are that it improves transparency and provides higher liquidity that is an easier ability to trade in derivatives worldwide knowing there are standardized terms available in addition clarifying the terms in the agreement saves time and legal fees for everyone involved requirements of an isda master agreementthe master agreement and schedule set out the grounds under which a party can force the closeout of covered transactions because of a termination event by the other party standard termination events include failure to pay or bankruptcy other termination events including credit downgrades can be added to the schedule the isda master agreement also specifies whether the laws of the u k new york state or some other jurisdiction apply it also sets out the terms for valuing closing out and netting all covered transactions in case of a termination event netting is a key feature of the isda master agreement it s a way to offset or consolidate different payment obligations between two parties into a single net payment instead of each party making separate payments for each individual transaction the amounts due are calculated and combined resulting in a single payment from one party to the other for example if party a owes party b 1 000 000 for one derivative transaction and party b owes party a 800 000 for another transaction these obligations can be netted against each other the result would be a single payment of 200 000 from party a to party b the isda master agreement allowance of netting is particularly important if there s a default by netting the transactions the overall credit exposure is reduced since the parties only need to settle the net amount rather than each individual transaction separately thus netting helps to mitigate counterparty risk and simplify cash flows isda master agreement exampleimagine that two companies abc inc and xyz corp are in international finance each is located in a different country and wishes to trade otc derivatives with each other abc inc and xyz corp could sign an isda master agreement based on the standard document this agreement would set down provisions for how the two companies will handle these transactions including what laws will apply and how the companies will close out the trades they make if there is a disagreement between the two companies about one or more trades they will settle the disagreement using the laws specified in the agreement and based on the terms included in the isda master agreement who uses isda master agreements isda master agreements are most commonly used by international financial companies but they can be used by others some ultra high net worth individuals use these agreements to trade 3 | |
how can one of the parties end an isda master agreement | each isda master agreement has provisions that specify how one or both parties can cancel the agreement they also include events that will automatically end the agreement such as one party entering default | |
are isda master agreements also called hunting licenses | yes the term hunting license was used to describe isda master agreements in michael lewis s the big short this refers to the massive market for otc derivatives and how these agreements give some investors the chance to make high level trades unavailable to most 3the bottom linethe isda master agreement is a standardized document created by the isda for otc derivatives transactions it provides a framework for the terms and conditions for trading otc derivatives helping to cut legal and credit risks by establishing consistent documentation across different jurisdictions and many trades the major parts of the isda master agreement include the schedule which allows parties to customize certain terms and the csa which details the collateral arrangements the master agreement also addresses issues like dispute resolution the governing law and tax considerations in addition it helps to manage counterparty risk since it ensures that both parties understand their rights and obligations |
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