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what are the disadvantages of a roth ira | among the disadvantages of roth iras is the fact that unlike 401 k s they do not include an up front tax break secondly annual contribution limits are about a third of 401 k s and for some high income individuals contributions are either reduced or not allowed 28the bottom linea roth ira is an individual retirement account ira that allows you to withdraw money without paying a penalty on a tax free basis after age 59 and after you have owned the account for its five year holding period if you buy a home pay for college or need your roth funds for the birth or adoption of a child you can also withdraw without paying a penalty roth accounts are funded with after tax money so while you don t get the up front tax break of a traditional ira you can withdraw your contributions without paying federal or state income tax on the amount after meeting the criteria for withdrawals for individuals who anticipate that they will be in a higher tax bracket when they are older or have retired roth iras can provide a beneficial option as the money is not taxable unlike a 401 k or traditional ira withdrawals | |
what is a round lot | a round lot refers to a standard trading order of securities round lots can consist of 100 or any multiple of 100 units of securities lots are traded on exchanges and are made up of any type of security including stocks and bonds in stocks a round lot is considered 100 shares or a larger number that can be evenly divided by 100 in bonds a round lot is usually 100 000 worth a round lot is often referred to as a normal trading unit and is contrasted with an odd lot | |
how round lots work | in trading a lot is a fixed number of units of a financial asset traded on an exchange lots can be bought or sold as noted above they can include any type of financial instrument including stocks and exchange traded funds etfs bonds options futures and foreign exchange among others investment managers and institutions typically purchase stocks in large batches round lots often have lower trading costs than other orders and discounts are applied for various round lot amounts round lots help simplify the trading process and increase market efficiency historically a round lot of 100 shares of stock has been the smallest order that can be placed through an exchange however that is changing today so called odd lots and fractional shares allow for the execution of orders as small as one share on some exchanges or even a fraction of a share types of round lotsround lots are generally executed quicker although trading in odd lots is becoming easier and less costly round lots vs odd and mixed lotsa lot consisting of fewer than 100 shares or a lot that cannot be evenly divided by 100 is called an odd lot odd lots may be combined or bunched into round lots to facilitate trading a mixed lot consists of both a round lot and an odd lot an order of 198 shares would be considered a mixed lot odd lots are increasingly common but they generally incur higher costs improved electronic trading technologies helped reduce any additional fees nevertheless odd lot trades may not be allowed or given priority some exchanges may require only round lots for pre specified market orders including reserve orders these orders are placed for trades at a specified transaction price and preference is given for round lots even fractional shares can now be traded this type of trading originally allowed for dividend reinvestment many brokerages now use it to allow their customers to use a dollar cost investing strategy the customer sets a personal goal of investing a set amount of money say 200 every month in a particular stock or fund regardless of its price swings | |
what is a round lot holder | a round lot holder is a party who owns a round lot of unrestricted shares a round lot is made up of 100 shares or a multiple of 100 shares unrestricted shares are those that do not required any conditions to be filled before they can be transferred or sold | |
what is a board lot | the term board lot refers to the standard number of units of shares set by an exchange as a single trading unit for most exchanges this is generally the same as a round lot which represents 100 shares or a multiple of 100 shares keep in mind though that the size of a board lot may change based on the exchange so it may be higher in some cases for instance japanese exchanges have board lot sizes of 1 000 shares 2 | |
are round lots more common than odd lots | round lots are among the most common large trading orders as they incur the lowest trading fees but odd lots are becoming more common among traders and brokers that s because automated and electronic trading makes it easier to execute these trades at lower costs the bottom linea lot is the total number of units of a financial instrument that is bought and sold on an exchange lots can be mixed odd or round the size of a round lot is determined by the exchange in most cases it is made up of 100 shares of a financial security such as a stock or bond it may also be a multiple of 100 trading round lots helps improve market efficiency and because it s a bulk order also provides traders with lower trading costs | |
what is a routing transit number | a routing transit number is a nine digit number used to identify a bank or financial institution when clearing funds for electronic transfers or processing checks in the united states a routing transit number is also used in online banking and clearinghouses for financial transactions only federally chartered and state chartered banks that are eligible to maintain an account at a federal reserve bank are issued routing transit numbers | |
how routing transit numbers work | a bank s routing transit number is located at the bottom of a check and is the first nine digits on the far left the first four digits designate the federal reserve bank of the district where the institution is located the next four digits denote the bank itself while the last digit is a classifier for the check or negotiable instrument 2the numbers following the routing transit number on a check are the account number and check number for the bank from which the funds are to be drawn all checks written on state or federally chartered banks will have routing transit numbers on the bottom paper checks also have a routing symbol which performs much the same function as the routing numbers on the bottom of the check the routing symbol is located at the top of the check and is also called the fractional bank number | |
how routing transit numbers are used | routing transit numbers are often used when setting up a wire transfer relationship with one s personal or business bank a wire transfer is an electronic funds payment across a network administered by hundreds of banks worldwide while no physical currency moves among financial institutions during a wire transfer information does pass between banks including the recipient s account information the receiver s bank account number and the amount of the transfer as a result a correct routing transit number is critical to ensure sensitive information is directed to the appropriate receiving party and that the transaction goes through smoothly routing transit numbers are also involved in direct deposits of money from employers paying employees and income tax refunds from the internal revenue service irs a direct deposit allows a sender to deposit funds directly into the receiver s bank account electronically instead of issuing a paper check routing numbers are nine digits long while bank account numbers often vary in length in addition your routing number will always begin with a 0 1 2 or 3 routing number vs other banking numbersthere are a few terms that are synonymous with routing transit number including routing number transit number and aba number aba is an acronym for the american bankers association which established these numbers in 1910 1 the terms routing transit and aba are often used interchangeably routing numbers were originally established for checking accounts but have since evolved to include identifying banks during electronic transactions as well a swift code is a similar identification code used for facilitating banking transactions though swift codes are mainly used for international transfers alternatively an international bank account number iban is a lengthy alphanumeric code that identifies the country check number bank code bank branch code and bank account number of a transaction it is also mainly used for international transactions special considerationsbefore the invention of the internet and the widespread use of computers check fraud was a major issue fraudsters could falsify a routing number on a check and attempt to cash the check at a local bank without the banks being on an interconnected computer system it was difficult to verify checking account routing numbers leading to instances of fraud and theft lexisnexis risk solutions it he official registrar of routing numbers and newly organized financial institutions must apply to have a routing number assigned to them a single financial institution may have multiple routing numbers for different payment methods for example a bank may have a routing number specific for ach transfers paper transactions or wire transfers | |
what is a routing number | a routing number is a series of nine digits used to identify an institution banks use routing numbers to process transactions as the routing number tells all parties involved which institutions are involved and which parties are receiving or distributing funds | |
where can i find my bank s routing number | your bank s routing number can be found on the bottom of a paper check alternatively you can often find the routing number when you log into an online banking portal the routing number is often reported in the same location as your account number | |
how are routing numbers used | routing numbers are used by financial institutions to communicate between banks it is the number that identifies the institution you use so the transacting parties know where you account is located | |
what is roy s safety first criterion sfratio | roy s safety first criterion also known as the sfratio is an approach to investment decisions that sets a minimum required return for a given level of risk roy s safety first criterion allows investors to compare potential portfolio investments based on the probability that the portfolio returns will fall below their minimum desired return threshold the formula for the sfratio is s f r a t i o r e r m p where r e expected return on portfolio r m investor s minimum required return p standard deviation of the portfolio begin aligned sfratio frac r e r m sigma p textbf where r e text expected return on portfolio r m text investor s minimum required return sigma p text standard deviation of the portfolio end aligned sfratio p re rm where re expected return on portfoliorm investor s minimum required return p standard deviation of the portfolio | |
how to calculate roy s safety first criterion sfratio | the sfratio is calculated by subtracting the minimum desired return from the expected return of a portfolio and dividing the result by the standard deviation of portfolio returns the optimal portfolio will be the one that minimizes the probability that the portfolio s return will fall below a threshold level | |
what does roy s safety first criterion tell you | the sfratio provides a probability of getting a minimum required return on a portfolio an investor s optimal decision is to choose the portfolio with the highest sfratio investors can use the formula to calculate and evaluate various scenarios involving different asset class weights different investments and other factors that affect the probability of meeting their minimum return threshold some investors feel that roy s safety first criterion is a risk management philosophy in addition to being an evaluation method by choosing investments that adhere to a minimum acceptable portfolio return an investor can sleep at night knowing that her investment will achieve a minimum return and anything above that is gravy the sfratio is very similar to the sharpe ratio for normally distributed returns the minimum return is equal to the risk free rate example of roy s safety first criterionassume three portfolios with various expected returns and standard deviations portfolio a has an expected return of 12 with a standard deviation of 20 portfolio b has an expected return of 10 with a standard deviation of 10 portfolio c has an expected return of 8 with a standard deviation of 5 the threshold return for the investor is 5 | |
what is a royalty | a royalty is a legally binding payment made to an individual or company for the ongoing use of their property including copyrighted works franchises and natural resources royalties can be collected for tangible and intangible assets an example of royalties would be payments received by musicians when their original songs are played on the radio or television used in movies performed at concerts bars and restaurants or consumed via streaming services in most cases royalties are revenue generators specifically designed to compensate the owners of songs or property when they license their assets for another party s use investopedia jessica olahunderstanding royaltiesroyalty payments typically constitute a percentage of the gross or net revenues obtained from the use of property however they can be negotiated on a case by case basis according to the wishes of both parties an inventor or original owner may choose to sell their product to a third party in exchange for royalties from the future revenues the product may generate for example computer manufacturers pay microsoft corporation royalties for the right to use its windows operating system in the computers they manufacture third parties pay authors musical artists and production professionals for using their produced copyrighted material television satellite companies pay royalty payments to air the most viewed stations nationwide in the oil and gas sectors companies pay landowners royalties for permission to extract natural resources from their covered property payment may be nonrenewable resource royalties patent royalties trademark royalties franchises copyrighted materials book publishing royalties music royalties and art royalties well known fashion designers can charge royalties to other companies for using their names and designs royalty agreements should benefit both the licensor the person receiving the royalty and the licensee the person paying the royalty for the licensor a royalty agreement to allow another company to use its product can allow them access to a new market for the licensee an agreement may give them access to products they could not access otherwise types of royaltiesroyalty payments may cover many different types of property some of the more common types of royalties special considerationsthe terms of royalty payments are laid out in a licensing agreement the licensing agreement defines the limits and restrictions of the royalties such as its geographic limitations the duration of the agreement and the type of products with particular royalty cuts licensing agreements are uniquely regulated if the resource owner is the government or if the license agreement is a private contract in many licensing agreements royalty rates are defined as a percentage of sales or a payment per unit rates may also be a factor of to accurately estimate royalty rates the transactions between the buying and selling parties must be willingly executed in other words the agreements must not be forced furthermore all royalty transactions must be conducted at arm s length meaning that both parties act independently and have no prior relationship according to upcounsel a nationwide legal services company the industries with the highest average royalty rates are software 9 6 energy and environment 8 and healthcare equipment and products 6 4 the industries with the lowest average royalty rates are automotive 3 3 aerospace 4 and chemicals 4 3 1examples of royaltiesbook writers typically receive a share of the proceeds from the sales of their books for instance an agreement between a publisher and writer might be that the author receives 15 on net sales of hardbacks and 7 5 on net sales of paperbacks franchises are another example where royalties are used for instance an individual can pay to open a restaurant franchise like mcdonald s a franchisee of the mcdonald s corporation has a typical initial down payment of 40 of the total for a new restaurant or 25 of the total for an existing one additionally an initial franchise fee of 45 000 is paid to the mcdonalds corporation after purchasing the franchise the owner must then make ongoing royalty payments of 4 5 of monthly sales and pay rent which is either a base amount or a percentage of monthly gross sales 2 | |
what are royalties in business | royalties are designed to protect the intellectual property rights of a company a company might file a patent on an innovation so a third party must pay them a fee to use it intellectual property can be in the form of copyrights patents and trademarks | |
what are royalty investments | typically an investor may receive a regular monthly or quarterly payment based on a company s sales these investments are considered less risky than traditional stocks because they are not dependent on the stock market or interest rates also royalty investments add diversity to a portfolio like stock royalties can be bought and sold | |
what are royalty interests | royalty interest applies to mineral rights agreements a royalty interest entitles the mineral rights owner to receive a portion of the minerals produced or a portion of the gross revenue from sold production | |
what is a royalty agreement | a royalty agreement is a legal contract between a licensor and a licensee it grants the licensee the right to use the licensor s intellectual property in exchange for royalty payments the agreement will show the royalty rate and terms it will also state the parties involved the rights granted and the period of use the bottom lineroyalties are a way for creators innovators intellectual property owners or landowners to earn money from their assets royalties are agreements or licenses that lay out the terms by which a third party can use assets that belong to someone else royalties can be earned on books music minerals franchises and many other assets some royalty agreements are for a set period while other royalties are earned in perpetuity | |
what is rule 10b 5 | rule 10b 5 is a regulation created under the securities exchange act of 1934 that targets securities fraud this rule makes it illegal for anybody to directly or indirectly use any measure to defraud make false statements omit relevant information or otherwise conduct business operations that would deceive another person in the process of conducting transactions involving stock and other securities 1rule 10b 5 is formally known as the employment of manipulative and deceptive devices 1 | |
how rule 10b 5 works | rule 10b 5 is the main basis for the u s securities and exchange commission sec to investigate possible security fraud claims violations of the rule include executives making false statements to elevate share prices a company hiding huge losses or low revenue with creative accounting practices or actions taken to grant current shareholders a better return on their investments as long as the deception remains undiscovered these schemes typically require ongoing misleading statements to perpetrate fraud rule 10b 5 also covers instances where an executive issues false statements to artificially drive down the price of a company s stock so they can buy up more shares at a discounted rate these and other manipulative uses of confidential information are acts of insider trading in addition to making illicit profits or attracting more investors these schemes can be put in motion as a way of taking over a company by changing the shareholder balance introduction of rules 10b5 1 and 10b5 2in 2000 the sec further defined and clarified a range of issues related to potential securities fraud with ratification of rule 10b5 1 and rule 10b5 2 these rules put insider trading into a more modern legal perspective 2rule 10b5 1 says that an individual is trading based on material nonpublic information mnpi if that person is aware of the information while engaging in a sale or purchase of securities 3however there are exceptions to and stipulations of rule 10b5 1 that let individuals proceed with trading even if they possess such information they include trades that are parts of plans that were already set in motion through a contract or process that wouldn t be affected by knowledge of the information 3according to rule 10b5 2 securities fraud can be committed even under nonbusiness circumstances 4rule 10b5 2 explains ways that the misappropriation theory which postulates that a person who uses insider information in trading securities has committed securities fraud against the information source even if that person isn t an insider can apply even under nonbusiness circumstances 4it further states that an individual who obtains confidential information is obliged to a duty of trust 4 | |
how affirmative defense works under rule 10b5 1 c | in general an affirmative defense occurs in a legal sense when someone takes precautionary action before an event for instance say you had a broken sidewalk slab in front of your house and you re afraid someone might get hurt if they trip on the slab and then sue you until getting it repaired you place some orange hazard cones on the site to warn others that there is a hazard that constitutes an affirmative defense meaning you took steps to warn others ahead of someone hurting themselves in the securities industry an affirmative defense is used to apply to securities transactions that could otherwise be interpreted as insider trading or a potentially shady transaction involving mnpi a 10b5 1 trading plan set up by a company or insider executive spells out the time period covered by the plan the amount of securities involved and any price involved in the transaction as well as the executive involved for instance a 10b5 1 plan might be entered into by a senior executive in which they intend to sell x amount of shares by a certain date and at a certain price having their 10b5 1 plan in place not only eliminates the perception of any sort of insider trading but also discloses in public the actual details of the executive s trading plan all this is intended to keep markets transparent and insider trading visible to everyday investors the 10b5 1 plan is the orange safety cone in the securities markets several adjustments to the use of the affirmative defense doctrine by insiders became effective on feb 27 2023 insider trading under these rules means there is a plan to sell securities by officers directors and others with access to mnpi 52023 changes to trading plan rulesthe following are changes put in place in early february 2023 to clarify rules and procedures related to insider trading activities for directors and section 16 officers wishing to trade their company s stock there is now a mandatory cooling off period section 16 is a rule within the securities exchange act of 1934 that spells out the regulatory filing responsibilities that directors officers and principal stockholders are legally required to adhere to the new required cooling off period covers the later of 90 days before trading under a 10b5 1 plan can be activated or two business days after disclosure in a periodic report of the issuer s financial results for the quarter in which the plan was adopted the idea of the cooling off period is to prevent the appearance of insider trading by having an executive lay out a plan for transactions well in advance of any actual transaction in this case 90 days before the 10b5 1 plan can be put in action for people other than an issuer director or section 16 officer a 30 day cooling off period is required between the plan s adoption and the start of trading under it 6previously there was no mandatory cooling off period although most issuers and firms observed some form of a quiet period most frequently using a 30 day time frame this rule applies to people with an existing 10b5 1 plan it prohibits them from establishing an additional 10b5 1 plan covering the same time period defined under 10b5 1 c 1 this regulation is intended to prevent the hedging of an existing 10b5 1 plan with overlapping dates which may give the 10b5 1 holder an unfair advantage over the general investing public 6this new regulation offers the availability of the affirmative defense for all individuals other than issuers to be applied to a single trade plan during any 12 month period in which the plan calls for the purchase or sale of securities in a single transaction the exception to this rule is that no other 10b5 1 plan calling for a single transaction has been enacted in the last 12 months or would otherwise satisfy rule 10b5 1 c as with the overlapping plan exception the sec excluded from this prohibition qualified sell to cover transactions typically made for tax purposes 6this rule requires directors and section 16 officers to declare in their 10b5 1 plan that they don t have mnpi and that they are entering the 10b5 1 plan in good faith and not as part of a plan or scheme to evade the prohibitions of rule 10b 5 while previously there was no regulation covering certification of a lack of mnpi most banks and institutions would regularly require such an attestation as part of a 10b 5 plan 6all 10b5 1 plans must contain a certification that the plan owner is acting in good faith during the tenure of the plan this regulation is specifically aimed at the owners of plans insiders and the possibility that they might attempt to influence others to make pronouncements or take other actions that would be favorable to the 10b5 1 plan owner violation of the good faith rule removes the affirmative defense option and exposes the plan owner to punishment for insider trading violations 6 | |
what is rule 10b 5 | this rule covers insider trading and lays out various ways in which insiders can manipulate securities in their favor and against the general investing public it also provides ways for insiders to rightfully transact in their own company s stock creating a trading plan that serves as an affirmative defense to insider trading rules | |
how can senior officers or directors sell or buy securities without violating insider trading rules | senior company officers or directors can avoid the appearance of insider trading and use an affirmative defense by establishing a plan in advance 90 days for insiders or 30 days for outsiders to transact sell or buy in the securities of the insider s firm | |
what if i come into possession of mnpi and i am not an employee of the company involved | anyone who comes into possession of mnpi is under an obligation not to act on that information as it could still be construed as a form of insider trading leading to prosecution of the person acting on it | |
how long must a 10b5 1 be in place before it can be acted upon | the sec has recently declared a 90 day mandatory cooling off period before a 10b5 1 plan can be implemented this is to avoid the appearance of potential insider trading and offers the company insider an affirmative defense once they enact their 10b5 1 trading plan the bottom linerule 10b 5 sets regulations against insider trading the rule lays out the types of information considered material nonpublic information mnpi and outlines ways that insiders can violate sec insider trading regulations and expose themselves to penalties and fines rule 10b5 1 was created to allow senior company officials to transact in the company s stock and avoid insider trading prohibitions the insider can adopt an affirmative defense for such trading by creating a plan in advance that details what transactions the insider intends to make | |
what is rule 10b 18 | rule 10b 18 is a securities and exchange commission sec rule that is intended to reduce liability for companies and their affiliated purchasers when the company repurchases shares of the company s common stock rule 10b 18 is considered a safe harbor provision a safe harbor is a legal provision to reduce or eliminate legal or regulatory liability in certain situations as long as certain conditions are met if the company abides by the four conditions of rule 10b 18 when it is repurchasing the shares the sec will not deem the transactions in violation of anti fraud provisions of the securities exchange act of 1934 understanding rule 10b 18rule 10b 18 provides information about the manner timing price and volume of repurchases by an issuer while compliance with the rule is voluntary if an issuer wants to reduce or eliminate their regulatory liability they must satisfy each of the four conditions daily otherwise repurchases will not fall under the safe harbor for that day the sec instituted rule 10b 18 in 1982 it was intended to help create a way for a company s board of directors to authorize the repurchase of a certain number of the company s shares in 2003 the sec amended the rule adding additional requirements for companies companies must now disclose more detailed information regarding share repurchases on additional sec filings including form 10 q form 10 k and form 20 f there are four conditions that must for met in order for a company or its affiliates to reduce liability when repurchasing shares of the company s stock first the issuer or affiliate must purchase all shares from a single broker or deal during a single day second there are certain requirements for the timing of the purchase an issuer with an average daily trading volume adtv that is less than 1 million per day or that has a public float value below 150 million cannot trade within the last 30 minutes of trading companies with higher average trading volume or public float value can trade until the last 10 minutes third the issuer must repurchase at a price that does not exceed the highest independent bid or the last transaction price quoted finally the issuer cannot purchase over 25 of the average daily volume in addition to meeting these four requirements companies are also required to disclose certain information quarterly on form 10 q and annually on form 10 k the company must provide a table showing several month by month statistics these statistics include although rule 10b 18 provides a safe harbor for companies as long as they abide by the rule s stipulations the company must also report all repurchases in compliance with the various regulations this safe harbor provision is not available if the company made repurchases in order to evade federal securities laws | |
what is rule 10b5 1 | rule 10b5 1 established by the securities and exchange commission sec in 2000 allows insiders of publicly traded corporations to set up a trading plan for selling stocks they own it is a clarification of rule 10b 5 sometimes written as rule 10b5 created under the securities and exchange act of 1934 which is the primary vehicle for the investigation of securities fraud rule 10b5 1 permits major holders to sell a predetermined number of shares at a predetermined time many corporate executives use 10b5 1 plans to avoid accusations of insider trading understanding rule 10b5 1rule 10b5 1 allows company insiders to make predetermined trades while following insider trading laws and avoiding insider trading accusations it is recommended that companies permit an executive to either adopt or amend a 10b5 1 plan when its executives are allowed to trade the securities in tandem with their insider trading policy rule 10b5 1 stops any insiders from changing or adopting a plan if they are in possession of material nonpublic information mnpi it is not uncommon to see a major shareholder sell some of their shares at regular intervals a director of xyz corporation for example may choose to sell 5 000 shares of stock on the second wednesday of every month to avoid conflict rule 10b5 1 plans must be established when the individual is unaware of any mnpi these plans usually exist as a contract between the insider and their broker under rule 10b5 1 directors and other major insiders in the company large shareholders officers and others who have access to mnpi can establish a written plan that details when they can buy or sell shares at a predetermined time on a scheduled basis it is set up this way so that they are able to make these transactions when they are not in the vicinity of mnpi this also allows companies to utilize 10b5 1 plans in large stock buybacks requirements for rule 10b5 1there is a general overview and set planned guidelines for establishing a suitable rule 10b5 1 plan to be valid the plan must follow three distinct criteria for insiders to enter into a rule 10b5 1 plan they must not have any access to mnpi regarding anything about the company as well the company s securities there is nothing in the sec laws that makes it necessary to disclose the use of rule 10b5 1 to the public but that doesn t mean companies shouldn t release the information anyway announcements of utilizing rule 10b5 1 are useful in warding off public relations problems and helping investors understand the logistics behind certain insider trades amendments to rule 105b 1on dec 14 2022 the u s securities and exchange commission adopted changes to rule 10b5 1 that increased disclosure requirements for stock trades and gifts of securities the amendments to rule 105b 1 require the person setting up trades to certify that they are not aware of any mnpi and that they are acting in good faith the changes also added new conditions to the use of the affirmative defense to insider trading liability including the establishment of a cooling off period before any trading can commence sec chair gary gensler said that changes to the rule came after comments over its two decades of existence with critics pointing out that insiders can take advantage of liability rules to trade while in possession of nonpublic information according to gensler the newly adopted amendments will help fill those potential gaps | |
what is the purpose of rule 105b 1 | rule 105b 1 lets company insiders sell their company s stock provided they set up a predetermined plan and certify that they do not have access to material nonpublic information about the company or its securities who is affected by rule 105b 1 rule 105b 1 applies to insiders in a publicly traded company these include directors and senior officers as well as entities and individuals that own more than 10 of the company s voting shares | |
what changes were made to rule 105b 1 | in december 2022 the sec adopted amendments to the rule that increase disclosure requirements and add conditions to the use of the affirmative defense to insider trading liability including a cooling off period before trading can begin the bottom linerule 10b5 1 allows insiders to sell company stock by setting up a predetermined plan that specifies in advance the share price amount and transaction date the insider selling the stock and the broker carrying out the transaction must certify that they are not aware of any material nonpublic information mnpi | |
what is rule 144 | rule 144 is a regulation enforced by the u s securities and exchange commission sec that sets the conditions for the sale or resale of restricted unregistered and control securities rule 144 provides an exemption from registration requirements for the sale of securities through the public markets if a number of specific conditions are met the regulation applies to all types of sellers in addition to issuers of securities underwriters and dealers the rule is designed to thwart insider trading and insure that the buyers of such securities receive adequate information the world of cryptocurrency is currently lightly regulated a bitcoin is not currently classified as a security that could change the sec is leading the push to bring cryptocurrency trading within its regulatory authority understanding rule 144rule 144 regulates transactions dealing with restricted unregistered and control securities control securities are held by insiders or others with significant influence on the issuer these types of securities are typically acquired over the counter otc or through private sales in some cases they constitute a controlling stake in an issuing company restricted securities can also be acquired through private placements or through stock benefit plans offered to a company s employees the sec prohibits the resale of restricted unregistered and control securities unless they are registered with the sec prior to their sale or they are exempt from the registration requirements the exemption requires that five specific conditions be met 1if the seller of a covered security is not associated with the company that issued the shares and has owned the securities for more than one year the five conditions of the rule are waived and the security can be sold without restrictions non affiliated parties may sell covered securities if they were held for more than six months rather than a full year provided the current public information requirements are met 5 conditions for resale of rule 144 securitiesfive conditions must be met for restricted unregistered and control securities to be sold or resold 1the holding period requirement under sec rule 144 depends on the type of issuer generally the minimum holding period is one year for reporting companies the holding period can be as little as six months while for non reporting companies it can be up to two years 1rule 144 and crypto securitiessec rule 144 applies to unregistered securities based on cryptocurrencies or blockchain based tokens while tokens like bitcoin are not currently classified as securities and would not be subject to rule 144 financial products that offer interest yield or dividends based on lending or staking such crypto tokens may fall under the definition of securities the sec is reportedly investigating several crypto exchanges including kraken gemini and genesis following the spectacular collapse of ftx in particular the sec is looking into whether these and other exchanges broke the rules by illegally offering unregistered securities to u s customers if a security is determined to be a restricted security as defined by sec rule 144 it can only be resold under specific circumstances including the passage of time the filing of form 144 and compliance with the quantity limitations imposed by the rule crypto exchanges genesis and gemini were sued by the sec in january of 2023 for the unregistered offer and sale of securities to customers through an interest bearing product this highlights the increased scrutiny that the crypto industry is facing from regulators such as the sec which has been taking enforcement action against crypto companies that violate rules and has called for them to get into compliance with existing regulations | |
what are restricted securities pursuant to rule 144 | sec rule 144 covers restricted securities restricted securities are typically sold in a private placement and cannot be freely traded on stock exchanges these shares are subject to resale and transfer restrictions which may include filing a registration statement with the sec | |
what are control securities and why are they subject to rule 144 | control securities are owned by corporate insiders or others with significant influence or control over the issuer of the securities such individuals or entities are known as affiliates or affiliate persons and their ownership of control securities is subject to additional restrictions and requirements under sec regulations | |
why was sec rule 144 created | the sec crafted rule 144 to regulate and provide a clearer framework for the resale and transfer of restricted and control securities the rule is intended to prevent market manipulation via insider and unauthorized selling and to protect investors by requiring that adequate information is disclosed to the public before securities can be sold | |
are cryptocurrencies subject to rule 144 | cryptocurrencies are not subject to rule 144 in fact their sale is lightly regulated by the sec or any other government body the sec takes the position that the top five cryptocurrency exchanges which are responsible for 99 of crypt trading likely are trading securities and should be required to register with the sec and comply with its regulations recent turmoil in the industry including the collapse of ftx is likely to increase pressure to regulate crypto trading the bottom linesec rule 144 outlines the conditions under which restricted and control securities can be sold in the public market rule 144 requires affiliates of an issuing company who want to sell their holdings to wait for at least a minimum holding period and comply with various reporting requirements and disclosures this regulation is intended to help prevent insider trading and importantly to protect investors by ensuring that information about the sale of securities is transparent and accurately disclosed to the market | |
what is rule 144a | the term rule 144a refers to a legal provision that amends restrictions placed on trades of privately placed securities this safe harbor loosens restrictions set forth by rule 144 under section 5 of the securities act of 1933 required for sales of securities by the securities and exchange commission sec 12known as the private resales of securities to institutions rule 144a was introduced in 2013 and allows these investments to be traded among qualified institutional buyers qib 3 it substantially increased the liquidity of the affected securities it also drew concern that it may help facilitate fraudulent foreign offerings and reduce the range of securities on offer to the general public understanding rule 144arule 144a was created in 2012 under the jumpstart our business startups jobs act subsequently the sec took the decision to implement it in 2013 it allowed sales to take place to more sophisticated institutional investors as they may not require the same type of information and protection as other investors the securities act stipulates that securities issuers must register them with the sec and provide extensive documentation through a filing with the agency before they can be offered to the general public 456under the original rule 144 from the securities act a minimum level of public accessible information is required of the selling party for reporting companies this issue is addressed as long as they are in compliance with their regular reporting minimums for nonreporting companies also called non issuers basic information regarding the company such as company name and the nature of its business must be publicly available 7rule 144a provides a mechanism for the sale of securities that are privately placed to qibs that do not and are not required to have an sec registration in place instead securities issuers are only required to provide whatever information is requested by the purchaser before making an investment 1 this creates a more efficient market for the sale of those securities a qualified institutional buyer is an entity that owns and invests a minimum of 100 million in securities not affiliated with the entity 8the sale must be handled by a brokerage or other registered firm in a manner deemed routine for affiliate sales this requires that no more than a normal commission be issued where neither the broker nor the seller can be involved in the solicitation of the sale of those securities 6special considerationsto meet filing requirements any affiliate sale of over 5 000 shares or over 50 000 during the course of a three month span must be reported to the sec on form 144 affiliate sales under both of these levels are not required to be filed with the sec for affiliates there is a limit on the number of transactions referred to as the volume that cannot be exceeded this must amount to no more than 1 of the outstanding shares in a class over three months or the average weekly reported volume during the four week period preceding the notice of sale on form 144 9rule 144a relaxed the holding period regulations for securities before they can be offered or sold to qualified institutional buyers rather than the customary two year holding period a minimum six month period applies to a reporting company and a minimum one year period applies to issuers who are not required to meet reporting requirements these periods begin on the day the securities in question were bought and considered paid in full 4criticism of rule 144arule 144a succeeded in increasing non sec trading activity this led to concern over trading that was all but invisible to individual investors as well as to some institutional ones the financial industry regulatory authority finra began to report rule 144a trades in the corporate debt market in 2014 in order to bring more transparency to the market and to allow the reporting of valuation for mark to market mtm purposes 10the sec also responded to questions in 2017 about the definition of qualified institutional buyers allowed to participate in rule 144a trades and how they calculate the requirement that they own and invest on a discretionary basis at least 100 million in securities of unaffiliated issuers 84concerns still endure about the effects of rule 144a including how it may allow unscrupulous overseas companies to fly under the regulatory radar when offering investments in the u s critics say the rule ultimately creates a shadow market allowing foreign companies to avoid the scrutiny of the sec while opening the u s markets up to the possibility of fraud committed by these entities | |
what is the rule of 70 | the rule of 70 calculates the years it takes for an investment to double in value it is calculated by dividing the number 70 by the investment s growth rate the calculation is commonly used to compare investments with different annual interest rates formula and calculation of the rule of 70 of years to double an investment 70 annual rate of return | |
what the rule of 70 can tell you | the rule of 70 helps investors determine the future value of an investment although considered a rough estimate the rule provides the years it takes for an investment to double the rule of 70 is an accepted way to manage exponential growth concepts without complex mathematical procedures investors can use this metric to compare investments with different growth rates or annual returns if the calculation yields a result of 15 years an investor looking to double their money in 10 years could make allocation changes to their portfolio to attempt to increase the rate of return examples of how to use the rule of 70rule of 70 vs real growththe rule evaluates investments but can also estimate other economic factors such as population growth or gross domestic product gdp the rule of 70 is an estimate based on a forecasted growth rate if future rates fluctuate the original calculation will be inaccurate as of may 2024 the population of the united states was approximately 342 million a 2020 prediction estimates that the u s population will grow at a rate of 62 annually using the estimation of the rule of 70 the population of the u s will double in 113 years 1real growth figures dispute the use of the rule of 70 in estimating population growth in 1955 the population of the united states was approximately 172 million and was estimated to double by 2025 based on actual population counts and rates of growth if the rule of 70 was used in 1955 to predict the doubling of the population when the growth rate was 1 57 the population would have doubled by 1999 1compound interest and the rule of 70compound interest is calculated on the initial principal and the accumulated interest of previous periods the rate at which compound interest accrues depends on the frequency of compounding the higher the number of compounding periods the greater the compound interest compound interest is a feature in calculating the long term growth rates of investments and the various rules of doubling if the interest earned is not reinvested the number of years it ll take for the investment to double will be higher than a portfolio that reinvests the interest earned the rule of 70 and any other doubling rules include estimates of growth rates or investment rates of return as a result the rule can generate inaccurate results with its limited ability to forecast future growth | |
what is a limitation of the rule of 70 | the rule of 70 assumes a constant rate of growth or return as a result the rule can generate inaccurate results since it does not consider changes in future growth rates | |
how is the rule of 70 used in economics | the rule of 70 can estimate how long it would take a country s gross domestic product gdp to double instead of estimating compound interest rates the gdp growth rate is the divisor of the rule for example if the growth rate for china is estimated as 10 the rule of 70 predicts it would take seven years or 70 10 for china s real gdp to double | |
what is the difference between the rule of 70 and the rules of 69 and 72 | the rule of 72 or the rule of 69 may also be used the function is the same as the rule of 70 but uses 72 or 69 respectively in place of 70 in the calculations the rule of 69 is often considered more accurate when addressing continuous compounding processes and 72 may be more accurate for less frequent compounding intervals the bottom linethe rule of 70 is a calculation that provides an estimate based on a constant growth rate of how many years it takes for an investment to double in value investors may use this calculation to evaluate the investment returns of mutual funds and retirement portfolios | |
what is the rule of 72 | the rule of 72 is a quick useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return alternatively it can compute the annual rate of compounded return from an investment given how many years it will take to double the investment while calculators and spreadsheet programs like microsoft excel have functions to accurately calculate the precise time required to double the invested money the rule of 72 comes in handy for mental calculations to quickly gauge an approximate value for this reason the rule of 72 is often taught to beginning investors as it is easy to comprehend and calculate the security and exchange commission also cites the rule of 72 in grade level financial literacy resources 1investopedia daniel fishelthe formula for the rule of 72the rule of 72 can be leveraged in two different ways to determine an expected doubling period or required rate of return years to double 72 expected rate of returnto calculate the time period an investment will double divide the integer 72 by the expected rate of return the formula relies on a single average rate over the life of the investment the findings hold true for fractional results as all decimals represent an additional portion of a year expected rate of return 72 years to doubleto calculate the expected rate of interest divide the integer 72 by the number of years required to double your investment the number of years does not need to be a whole number the formula can handle fractions or portions of a year in addition the resulting expected rate of return assumes compounding interest at that rate over the entire holding period of an investment the rule of 72 applies to cases of compound interest not simple interest simple interest is determined by multiplying the daily interest rate by the principal amount and by the number of days that elapse between payments compound interest is calculated on both the initial principal and the accumulated interest of previous periods of a deposit | |
how to use the rule of 72 | the rule of 72 could apply to anything that grows at a compounded rate such as population macroeconomic numbers charges or loans if the gross domestic product gdp grows at 4 annually the economy will be expected to double in 72 4 18 years with regards to the fee that eats into investment gains the rule of 72 can be used to demonstrate the long term effects of these costs a mutual fund that charges 3 in annual expense fees will reduce the investment principal to half in around 24 years a borrower who pays 12 interest on their credit card or any other form of loan that is charging compound interest will double the amount they owe in six years the rule can also be used to find the amount of time it takes for money s value to halve due to inflation if inflation is 6 then a given purchasing power of the money will be worth half in around 12 years 72 6 12 if inflation decreases from 6 to 4 an investment will be expected to lose half its value in 18 years instead of 12 years additionally the rule of 72 can be applied across all kinds of durations provided the rate of return is compounded annually if the interest per quarter is 4 but interest is only compounded annually then it will take 72 4 18 quarters or 4 5 years to double the principal if the population of a nation increases at the rate of 1 per month it will double in 72 months or six years who came up with the rule of 72 the rule of 72 dates back to 1494 when luca pacioli referenced the rule in his comprehensive mathematics book called summa de arithmetica 2 pacioli makes no derivation or explanation of why the rule may work so some suspect the rule pre dates pacioli s novel 3 | |
how do you calculate the rule of 72 | here s how the rule of 72 works you take the number 72 and divide it by the investment s projected annual return the result is the number of years approximately it ll take for your money to double for example if an investment scheme promises an 8 annual compounded rate of return it will take approximately nine years 72 8 9 to double the invested money note that a compound annual return of 8 is plugged into this equation as 8 and not 0 08 giving a result of nine years and not 900 if it takes nine years to double a 1 000 investment then the investment will grow to 2 000 in year 9 4 000 in year 18 8 000 in year 27 and so on | |
how accurate is the rule of 72 | the rule of 72 formula provides a reasonably accurate but approximate timeline reflecting the fact that it s a simplification of a more complex logarithmic equation to get the exact doubling time you d need to do the entire calculation the precise formula for calculating the exact doubling time for an investment earning a compounded interest rate of r per period is to find out exactly how long it would take to double an investment that returns 8 annually you would use the following equation t ln 2 ln 1 8 100 9 006 yearsas you can see this result is very close to the approximate value obtained by 72 8 9 years | |
what is the difference between the rule of 72 and the rule of 73 | the rule of 72 primarily works with interest rates or rates of return that fall in the range of 6 and 10 when dealing with rates outside this range the rule can be adjusted by adding or subtracting 1 from 72 for every 3 points the interest rate diverges from the 8 threshold for example the rate of 11 annual compounding interest is 3 percentage points higher than 8 hence adding 1 for the 3 points higher than 8 to 72 leads to using the rule of 73 for higher precision for a 14 rate of return it would be the rule of 74 adding 2 for 6 percentage points higher and for a 5 rate of return it will mean reducing 1 for 3 percentage points lower to lead to the rule of 71 for example say you have a very attractive investment offering a 22 rate of return the basic rule of 72 says the initial investment will double in 3 27 years however since 22 8 is 14 and 14 3 is 4 67 5 the adjusted rule should use 72 5 77 for the numerator this gives a value of 3 5 years indicating that you ll have to wait an additional quarter to double your money compared to the result of 3 27 years obtained from the basic rule of 72 the period given by the logarithmic equation is 3 49 so the result obtained from the adjusted rule is more accurate for daily or continuous compounding using 69 3 in the numerator gives a more accurate result some people adjust this to 69 or 70 for the sake of easy calculations | |
what is rule 72 t | rule 72 t allows for penalty free withdrawals from individual retirement accounts iras and other tax advantaged retirement accounts like 401 k and 403 b plans it is issued by the internal revenue service irs this rule allows account holders to benefit from their retirement savings before retirement age through early withdrawals without the otherwise required 10 penalty the irs still subjects the withdrawals to the account holder s normal income tax rate understanding rule 72 t rule 72 t refers to code 72 t section 2 which specifies exceptions to the early withdrawal tax these exceptions allow investors to withdraw funds from their retirement account before age 59 as long as certain qualifications are met to take advantage of this rule the owner of the retirement account must take at least five substantially equal periodic payments sepps 1 the amount of the payments depends on the owner s life expectancy as calculated through irs approved methods you must also withdraw these funds according to a specific schedule the irs offers three different methods for calculating your specific withdrawal schedule you must adhere to the payment schedule for five years or until you reach age 59 1 2 whichever comes later unless you are disabled or die calculation for payment amounts under rule 72 t the amounts an account holder receives in the periodic payments enabled by rule 72 t depend on life expectancy which can be calculated through one of three irs approved methods the amortization method determines yearly payment amounts by amortizing the balance of an investor s account over single or joint life expectancy this method develops the largest and most reasonable amount an individual can remove and the amount is fixed annually the minimum distribution method takes a dividing factor from the irs s single or joint life expectancy table using it to divide the retirement account s balance the key difference between this method and the amortization method is the resulting payments with the minimum distribution method as the name implies are the lowest possible amounts that can be withdrawn the minimum distribution method is nearly the opposite of the amortization method as the annual early withdrawal payments are likely to vary from year to year though not substantially the final irs approved calculation is the annuitization method which uses an annuity factor method provided by the irs to determine equivalent or nearly equivalent payments in accordance with the sepp regulation this method offers account holders a fixed annual payout with the amount typically falling somewhere between the highest and lowest amount the account owner can withdraw | |
what is the downside of 72 t | withdrawing money from a retirement account is a financial last resort using rule 72 t will deplete your retirement savings potentially putting the stability of your financial future in jeopardy | |
is 72 t a good idea | for many situations using rule 72 t is not a good idea the risk to your future retirement may be too great to justify taking money out now in some rare cases however it may be worth it | |
what is an example of withdrawing money early with rule 72 t | as an example assume a 53 year old woman who has an ira earning 1 5 annually with a balance of 250 000 wishes to withdraw money early under rule 72 t using the amortization method the woman would receive approximately 10 042 in yearly payments with the minimum distribution method she would receive around 7 962 annually over a five year period using the annuitization method she would receive approximately 9 976 annually the bottom linethis is why the irs has exceptions for specific circumstances like disability and illness if you do not meet any of the criteria for other exceptions then rule 72 t can be used if you have exhausted all other avenues it should not be used as an emergency fund strategy as any withdrawals could affect your future financial stability significantly | |
what is the rule of 78 | the rule of 78 is a method used by some lenders to calculate interest charges on a loan the rule of 78 requires the borrower to pay a greater portion of interest in the earlier part of a loan cycle which decreases the potential savings for the borrower in paying off their loan understanding the rule of 78the rule of 78 gives greater weight to months in the earlier part of a borrower s loan cycle when calculating interest which increases the profit for the lender this type of interest calculation schedule is primarily used on fixed rate non revolving loans the rule of 78 is an important consideration for borrowers who potentially intend to pay off their loans early the rule of 78 holds that the borrower must pay a greater portion of the interest rate in the earlier part of the loan cycle which means the borrower will pay more than they would with a regular loan calculating rule of 78 loan interestthe rule of 78 loan interest methodology is more complex than a simple annual percentage rate apr loan in both types of loans however the borrower will pay the same amount of interest on the loan if they make payments for the full loan cycle with no pre payment the rule of 78 methodology gives added weight to months in the earlier cycle of a loan it is often used by short term installment lenders who provide loans to subprime borrowers in the case of a 12 month loan a lender would sum the number of digits through 12 months in the following calculation for a one year loan the total number of digits is equal to 78 which explains the term the rule of 78 for a two year loan the total sum of the digits would be 300 with the sum of the months calculated the lender then weights the interest payments in reverse order applying greater weight to the earlier months for a one year loan the weighting factor would be 12 78 of the total interest in the first month 11 78 in the second month 10 78 in the third month etc for a two year loan the weighting factor would be 24 300 in the first month 23 300 in the second month 22 300 in the third month etc rule of 78 vs simple interest | |
when paying off a loan the repayments are composed of two parts the principal and the interest charged the rule of 78 weights the earlier payments with more interest than the later payments if the loan is not terminated or prepaid early the total interest paid between simple interest and the rule of 78 will be equal | however because the rule of 78 weights the earlier payments with more interest than a simple interest method paying off a loan early will result in the borrower paying slightly more interest overall in 1992 the legislation made this type of financing illegal for loans in the united states with a duration of greater than 61 months certain states have adopted more stringent restrictions for loans less than 61 months in duration while some states have outlawed the practice completely for any loan duration check with your state s attorney general s office prior to entering into a loan agreement with a rule of 78 provision if you are unsure the difference in savings from early prepayment on a rule of 78 loan versus a simple interest loan is not significantly substantial in the case of shorter term loans for example a borrower with a two year 10 000 loan at a 5 fixed rate would pay total interest of 529 13 over the entire loan cycle for both a rule of 78 and a simple interest loan in the first month of the rule of 78 loan the borrower would pay 42 33 in the first month of a simple interest loan the interest is calculated as a percent of the outstanding principal and the borrower would pay 41 67 a borrower who would like to pay the loan off after 12 months would be required to pay 5 124 71 for the simple interest loan and 5 126 98 for the rule of 78 loan | |
what is a rule of thumb | a rule of thumb is a heuristic guideline that provides simplified advice or some basic rule set regarding a particular subject or course of action it is a general principle that gives practical instructions for accomplishing or approaching a certain task typically rules of thumb develop as a result of practice and experience rather than through scientific research or a theoretical foundation understanding rules of thumbinvestors may be familiar with a variety of financial rules of thumb that are intended to help individuals learn remember and apply financial guidelines these rules of thumb address methods and procedures for saving investing purchasing a home and planning for retirement although a rule of thumb may be appropriate for a wide audience it may not apply universally to every individual and unique set of circumstances the rule of 72 is such a quick useful formula that is popularly used to estimate the number of years required to double the invested money at a given annual rate of return while calculators and spreadsheets have inbuilt functions to accurately calculate the precise time required to double the invested money the rule of 72 comes in handy for mental calculations to quickly gauge an approximate value examples of financial rules of thumbthere are several well known financial rules of thumb that provide guidance for investors including the following guidelines there are also rules of thumb for determining how much net worth you will need to retire comfortably at a normal retirement age here is the calculation that investopedia uses to determine your net worth take rules of thumb with a grain of saltwhile rules of thumbs are useful to people as general guidelines they may be too oversimplified in many situations leading to underestimating or overestimating an individual s needs rules of thumb do not account for specific circumstances or factors occurring at a particular time or that could change over time which should be considered for making sound financial decisions for example in a tight job market an emergency fund amounting to six months of household expenses does not consider the possibility of extended unemployment as another example buying life insurance based on a multiple of income does not account for the specific needs of the surviving family which include a mortgage the need for college funding and an extended survivor income for a non working spouse | |
what is the run rate | the run rate refers to the financial performance of a company based on using current financial information as a predictor of future performance the run rate functions as an extrapolation of current financial performance and assumes that current conditions will continue the run rate can also refer to the average annual dilution from company stock option grants over the most recent three year period recorded in the annual report investopedia dennis madambaunderstanding the run ratein the context of extrapolating future performance the run rate takes current performance information and extends it over a longer period for example if a company has revenues of 100 million in its latest quarter the ceo might infer that based on the latest quarter the company is operating at a 400 million run rate when the data is used to create a yearly projection for potential performance the process is referred to as annualizing a run rate can be helpful in the creation of performance estimates for companies that have been operating for short periods of time such as less than a year as well as newly created departments or profit centers this can be especially true for a business experiencing its first profitable quarter additionally the run rate can be helpful in cases where a fundamental business operation was changed in some way that was anticipated to affect all future performances of the associated business risks in using the run ratethe run rate can be a very deceiving metric especially in seasonal industries a great example of this is a retailer examining profit after the winter holiday season as this is a time when many retailers experience higher sales volumes if information based on holiday season sales was used to create a run rate estimates of future performance may be incidentally inflated additionally the run rate is generally based only on the most current data and may not properly compensate for circumstantial changes that can cause an inaccurate overall picture as an example certain technology producers like apple and microsoft experience higher sales in correlation with a new product release using data only from the period immediately following a large product release may lead to skewed data further run rates do not account for large one time sales for example if a manufacturer lands a large contract that is paid for upfront regardless of the timing of the delivery of the goods or services this can cause sales numbers to be abnormally high for one reporting period based on this anomalous purchase | |
how is the run rate arrived at | in finance the run rate extrapolates a firm s current performance in order to predict future performance with the assumption that current conditions will persist the projections are usually for an entire year which is why this process is sometimes called annualizing for example if a company has revenues of 100 million in its latest quarter the ceo might infer that the company is operating at a 400 million annualized run rate | |
how can using the run rate be helpful | a run rate can be helpful in the creation of performance estimates for companies that have been operating for short periods of time such as less than a year as well as newly created departments or profit centers additionally the run rate can be helpful in cases where a fundamental business operation was changed in some way that was anticipated to affect all future performances of the associated business | |
what are some drawbacks of using the run rate | the run rate can be a very deceiving metric especially in seasonal industries where estimates of future performance may be incorrectly inflated also since it is generally based only on the most current data it may not properly compensate for circumstantial changes that can cause an inaccurate overall picture furthermore run rates do not account for large one time events which can skew projections | |
what is runoff insurance | runoff insurance is an insurance policy provision that covers claims made against companies that have been acquired merged or have ceased operations runoff insurance also known as closeout insurance is purchased by the company being acquired and indemnifies exempts from liability the acquiring company from lawsuits against the directors and officers of the acquired company understanding runoff insuranceacquiring a company means taking possession of its assets but also its liabilities including those only be discovered in the future obligations arise for many reasons third parties may feel that they were not treated fairly in contracts investors may feel upset with how the previous directors and officers ran the business competitors may claim infringement of intellectual property rights an acquiring company might demand that the company being acquired purchase runoff insurance to protect itself from these liabilities a runoff policy is a type of claims made policy rather than an occurrence policy the difference in policy type is because the claim may be made several years after the incident that caused damage or loss and occurrence policies provide coverage only during the period that the policy was active the length of the runoff policy referred to simply as the runoff is typically set for several years after the policy becomes active the provision is purchased by the acquiring company and the purchase funds are often included in the acquisition price professionals may also purchase runoff insurance to cover professional liabilities that occur after a business has closed for example a physician who closes their private practice may purchase runoff insurance to protect themselves from claims filed by previous patients this type of policy is typically renewed until the statute of limitations on filing a claim has passed if the business continues to offer services its policies typically extend indemnification making the purchase of a runoff provision unnecessary the following insurance policies should have a runoff provision directors and officers d o insurance fiduciary liability insurance professional liability e o insurance and employment practices liability epl insurance runoff insurance exampleconsider a hypothetical runoff policy written for a term between jan 1 2017 and jan 1 2018 in this situation coverage will apply to all claims caused by wrongful acts committed between jan 1 2017 and jan 1 2018 that are reported to the insurer from jan 1 2018 to jan 1 2023 that is the five years immediately following the end of the policy term the north american runoff reserve in 2021 per pricewaterhousecoopers global insurance runoff survey 2021 compared to 302 billion for the u k and continental europe markets 1special considerationsalthough runoff insurance provisions function similarly to extended reporting period erp provisions there are several differences first erps are typically only for one year terms whereas runoff provisions normally encompass multi year periods second erps are frequently purchased when the insured individual switches from one claims made insurer to another whereas runoff provisions are used when one insured is acquired by or merges with another | |
what is the russell 1000 index | the russell 1000 index is a stock market index used as a benchmark by investors it is a subset of the larger russell 3000 index and represents the 1 000 top companies by market capitalization in the united states the russell 1000 is owned and operated by ftse russell and based in the united kingdom the index is considered a bellwether index for large cap investing understanding the russell 1000 indexthe russell 1000 was launched on jan 1 1984 by ftse russell which also manages the russell 3000 and russell 2000 a subset of the russell 3000 index the russell 1000 is market capitalization weighted where the largest companies constitute the largest percentages in the index and will affect performance more than the smallest index members 1the index consists of approximately 93 of the total market capitalization of all listed stocks in the u s equity market its components are reconstituted after the fourth friday in june every year 2top holdings of the russell 1000 indexto determine the holdings of the russell 1000 the company ranks all of the stocks included in the russell 3000 by market capitalization and identifies the market cap breakpoint of the 1 000th stock ranking 3this breakpoint is the primary market capitalization used to determine index eligibility many stocks are swapped between the russell 1000 and russell 2000 at the annual reconstitution however variation around the market cap breakpoint is the determining factor 3as of may 31 2024 the top 10 russell 1000 index constituents are performance of the russell 1000 indexperformance and characteristics of the russell 1000 index are provided monthly by ftse russell as of may 31 2024 the russell 1000 had 1 004 holdings and the average market cap was 832 billion the annual return for the russell 1000 index was 26 53 in 2023 and the average five year return was 15 42 5 | |
how to invest in the russell 1000 index | investors can purchase shares of the russell 1000 index through a mutual fund or an exchange traded fund allocated by type and sector investors who don t want to invest directly in the index may buy shares in passively managed index exchange traded funds etfs offered by ishares including the ishares russell 1000 index etf iwb and the ishares russell 1000 value etf iwd for large cap and mid to lower cap portfolios many investors prefer the russell 1000 for large cap portfolio exposure the ishares russell 1000 index etf is one of the leading funds offering comprehensive investment in all of the russell 1000 components iwb is an index fund that seeks to match the holdings and return of the russell 1000 index the fund was established on may 15 2000 and the etf trades on the new york stock exchange nyse the total assets under management aum as of june 26 2023 were 37 6 billion 6the ishares russell 1000 value etf allows investors to track both mid and large cap u s equities based on the russell 1000 index the etf was launched on may 22 2000 the etf trades on the nyse and as of june 26 2024 aum was 55 6 billion 7russell 1000 index variationsftse russell also offers several index variations derived from the russell 1000 these variations include the russell 1000 index vs dow jones industrial average vs s p 500the russell 1000 is a much broader index than the often quoted dow jones industrial average djia and standard poor s s p 500 index although all three are considered large cap stock benchmarks the djia which is also known as the dow 30 tracks the largest 30 blue chip stocks listed on the nyse and the nasdaq transport and utility companies are excluded from the index it is the second oldest stock market index in the united states and generally serves as a broad representation of the u s economy the s p 500 is one of the most commonly used indexes to measure the u s economy and large cap companies in the u s it is made of 500 of the largest companies by market cap in the country | |
what is the russell 2000 index | the russell 2000 index is a small cap stock market index that includes the smallest 2 000 stocks in the russell 3000 index | |
what factors determine which stocks are added to the russell 100o index | stocks are either added or subtracted from indexes based on several criteria including market capitalization closing price trading volume company structure and location 8 | |
does the russell 1000 index pay a dividend | as of may 31 2024 the dividend yield for the russell 1000 was 1 35 the index itself does not pay a dividend because it is only an index and is not investable investors who invest in any funds that track the index will receive dividends from the respective companies 1the bottom linethe russell 1000 is owned and operated by ftse russell based in the united kingdom the russell 1000 index is a subset of the larger russell 3000 index and represents the 1 000 top companies by market capitalization in the united states as of may 31 2024 the russell 1000 index comprised 93 of the total market capitalization of all listed stocks in the u s equity market 1 | |
what is the russell 2000 index | the russell 2000 index is a stock market index that measures the performance of the 2 000 smaller companies included in the russell 3000 index the russell 2000 is managed by london s ftse russell group widely regarded as a bellwether of the u s economy because of its focus on smaller companies in the u s market understanding the russell 2000 indexthe russell 2000 index was launched in 1984 by the frank russell company it is a u s index managed by ftse russell a subsidiary of the london stock exchange lse group the index is composed of about 2 000 small cap companies the index is the most widely quoted measure of the overall performance of small cap to mid cap stocks it represents approximately 7 of the total russell 3000 market capitalization and is made up of the bottom two thirds in terms of company size of the russell 3000 index the larger index reflects the movements of nearly 96 of all publicly traded u s stocks as of ftse russel s index factsheet dated march 31 2024 the index s top three holdings were super micro computer smci microstrategy mstr and comfort systems usa fix it is highest weighted in industrials followed by healthcare then financials the table below highlights a breakdown of the index by industry mutual fund investors favor the russell 2000 index because it reflects the investment opportunity presented by the entire market rather than opportunities offered by narrower indices which may contain bias or more stock specific risk that can distort a fund manager s performance it s no surprise that many funds and exchange traded funds etfs mirror or are based on the russell 2000 many investors compare small cap mutual funds movements against the index s movement that s because the index s movement is seen as a reflection of the opportunities in that entire sub section of the market rather than narrower indices which may contain biases or more stock specific risks that can distort performance key metrics of the russell 2000 indexas of march 31 2024 the average value for a company on the russell 2000 was 4 82 billion while the median market cap was 960 million the largest stock by market cap on the index was 58 43 billion the russell 2000 first traded above 1 000 on may 20 2013 two sub indexes of the russell 2000 have been created to track the performance of companies within it that contain unique characteristics that are desired by certain types of investors the smallest 1 000 companies in the russell 2000 make up the russell 1000 microcap index the russell 2000 is itself composed of the two thousand smallest companies in the broader russell 3000 index special considerationsthe russell 2000 index is weighted using a combination of market cap and the other indexes a stock is listed on this means that a member stock s last sale price the number of shares that can be traded and whether it is on other indexes influence its listing on the index the other big difference between the russell 2000 and other major indices is that it tracks small cap stocks the s p 500 and dow jones industrial average djia indices on the other hand track large cap stocks the index s returns can be replicated by investors who take the trouble to create a sizeable and complex portfolio that mirrors the index however there are far easier ways to get the same returns for instance investors can use index futures or index based mutual funds that track the russell 2000 the most popular option is an etf the most heavily traded of the etfs is the ishares russell 2000 index etf iwm | |
what does the russell 2000 indicate | the russell 2000 index is a measure of the performance of 2 000 publicly traded small cap u s companies | |
what is the russell 2000 methodology | the russell 2000 weighs u s small capitalization stocks using a float adjusted market capitalization approach | |
what s the highest the russel 2000 has ever been | the russell 2000 reached a high of 2 458 on nov 7 2021 the bottom linethe russell 2000 is an index of 2 000 small cap companies that was first launched in 1984 it is widely used as a benchmark for u s small cap stocks the index comprises 2 000 of the smallest companies in the russell 3000 which itself covers roughly 98 of the stocks publicly traded in the u s the russell 2000 is rebalanced every june and companies are added deleted or kept | |
what is the russell 3000 index | the russell 3000 index is part of the ftse russell that provides exposure to the u s stock market its date of inception is jan 1 1984 the index measures the performance of the largest 3 000 u s companies representing approximately 96 of the investable u s equity market 1understanding the russell 3000 indexthe russell 3000 index is a building block for the large cap russell 1000 and the small cap russell 2000 indexes the largest 1 000 stocks indexed in the russell 3000 constitute the russell 1000 while the russell 2000 is a subset of the smallest 2 000 components of the russell 3000 23the russell 3000 index is constructed to provide a comprehensive unbiased and stable barometer of the broad market and is reconstituted annually to ensure that new and growing equities are included securities in the financial consumer discretionary healthcare and technology sectors represent a significant portion of the underlying index as of may 31 2024 the average market capitalization of the russell 3000 stock holdings was 790 billion the index had a total of 2 932 holdings 1russell 3000 top holdingsrussell index 3000 reconstitutionthe russell u s indexes are designed to reflect the ever changing u s equity market and the annual reconstitution process is critical to maintaining accurate representation when the indexes are reconstituted the breakpoints among large cap mid cap and small cap stocks are redefined to ensure market changes that have occurred in the preceding year are captured companies are evaluated to determine where they lie along the investment spectrum from value to growth companies will be added to removed or swapped among the russell 3000 2000 and 1000 stocks in the russell 3000 index are reconstituted once a year on the last friday in june 4investing in the russell 3000 indexftse russell group does not offer direct investment opportunities investors can purchase individual shares of each company represented in the russell 3000 index but many financial institutions offer exchange traded funds etfs or index funds that mimic the performance of the russell 3000 and contain its component stocks russell 3000 vs other indexesthe s p 500 index tracks the largest 500 publicly traded companies with exposure to 80 of u s stocks compared to the russell 3000 s 96 the dow jones industrial average djia measures the performance of 30 large companies covering all sectors except transportation and utilities 56the nasdaq composite index measures stocks listed exclusively on the nasdaq exchange there are over 3 000 securities listed on the nasdaq composite which gives it a broader exposure than the s p 500 or the djia but weighs heavily in the technology sector 7limitations of the russell 3000 indexcan individuals invest directly in an index investors cannot invest directly in a stock index such as the russell 3000 or the s p 500 but can invest in an index fund or etf that tracks the performance of the target index | |
how are stocks evaluated for inclusion in the russell 3000 | ftse russell calculates the total market capitalization of each stock to determine whether it is large enough to be included in the russell indices total market capitalization is determined by multiplying total outstanding shares by the market price as of the rank day for stocks considered at annual reconstitution 8 | |
what is an index fund | an index fund is a type of mutual fund or etf with a portfolio constructed to track the components of a financial market index such as the russell 3000 the bottom linethe russell 3000 index established in 1984 measures the performance of the largest 3 000 u s companies representing approximately 96 of the investable u s equity market large cap stocks direct the index s performance and include holdings such as apple microsoft and meta 1 | |
what is an s corp | an s corp or s corporation is a business structure that is permitted under the tax code to pass its taxable income credits deductions and losses directly to its shareholders that gives the s corp certain advantages over the more common c corp the s corp is available only to small businesses with 100 or fewer shareholders it is an alternative to the limited liability company llc both s corps and llcs are known as pass through entities because they pay no corporate taxes instead they pay their shareholders who become responsible for the taxes due understanding s corpss corp gets its name from subchapter s of the internal revenue code under which it has elected to be taxed the key characteristic of a corporation filed under subchapter s it may pass business income losses deductions and credits directly to shareholders without paying any federal corporate tax this is known as a pass through entity this gives it some special tax benefits under 2017 s tax cuts and jobs act however it is liable on the corporate level for taxes on specific built in gains and passive income 12aside from its tax status an s corp is similar to any other corporation or c corporation as they re officially known an s corp is a for profit company incorporated under and governed by the same state corporation laws it offers similar liability protection ownership and management advantages as a c corp 3an s corp must also observe internal practices and formalities that include 4the main difference between an s corp and a c corp is how each is taxed c corp profits are taxed when earned and then taxed again when distributed to shareholders as dividends this results in a double tax 5an s corp may pass income directly to shareholders without having to pay federal corporate taxes 2to qualify for s corporation status a business has to meet certain internal revenue service irs requirements 2partnerships corporations and nonresident aliens cannot qualify as eligible shareholders s corp shareholders report income gains and losses from the corporation on their individual tax returns and they pay taxes at their ordinary income tax rates since the money comes to them free of corporate tax s corp status prevents double taxation of any income or earnings from the corporation 2to create an s corporation a business must first be incorporated it then must file form 2553 with the irs this form is known officially as election by a small business corporation it states that the irs will accept the s corp status only if the business meets all the qualifications for the status all shareholders have signed the consent statement an officer has signed below and the exact name and address of the corporation entity and other required form information have been provided 6advantages and disadvantages of s corporationstax benefits no or lesser corporate and self employment tax for owner no double taxation for shareholdersprotections of incorporation limited liability transfer of interestsprestige credibilitycosts of incorporationcomplex compliance rulespotentially growth inhibiting qualifications to maintain statuss corp vs llca limited liability company llc is another type of legal business entity like the s corp it s a common go to structure for small businesses llcs and s corps share other characteristics as well both are pass through entities meaning that they don t pay corporate taxes both offer limited liability protection for their owners principals meaning that the owners personal assets can t be touched by business creditors nor can they be held personally responsible in lawsuits filed against the company 3as a pass through entity llc owners also have tax benefits due to the tax cuts and jobs act just as s corp owners do 1however llcs are more flexible than s corps they aren t subject to the irs regulations concerning the number and type of shareholders owners called members or to other federal or state rules regarding governance no required board meetings or minutes procedure and distribution of funds and they can allocate their profits and losses in whatever proportions the owners desire 14easier to establish than s corps llcs typically are formed by sole proprietors or small groups of professionals like attorneys doctors or accountants however their financing options are more limited generally to bank loans as opposed to equity investors in turn this can limit their potential for growth u s income tax return for an s corporationalthough they are largely exempt from corporate taxes s corporations must still report their earnings to the federal government and file tax returns form 1120 s is essentially an s corp s tax return often accompanied by a schedule k 1 which delineates the percentage of company shares owned by each individual shareholder form 1120 s reports the income losses dividends and other distributions that the corporation has passed to its shareholders 1920unlike c corps which must file quarterly s corps only file once a year like individual taxpayers 21 form 1120 s is simpler than tax forms for c corporations too the version for tax year 2023 ran five pages 22as long as a company elects s corporation status and the irs has accepted that election it must file form 1120 s the form is due by the 15th day of the third month after the end of its fiscal year generally march 15 for companies that follow a calendar year 23like individuals s corporations can request a six month extension to file their tax returns to do so they must file form 7004 application for automatic extension of time to file certain business income tax information and other returns by their return s regular due date 24 | |
why would you choose an s corp | s corps combine the benefits of corporations with the tax advantages of partnerships they offer the limited liability protection of the corporate structure meaning that an owner s personal assets can t be accessed by business creditors or legal claims against the company but like partnerships they don t pay corporate taxes on any earnings and income that they generate they can also help owners avoid self employment tax | |
how does an s corp work | in many ways an s corp works as any corporation does operating under its home state s corporation statutes it establishes a board of directors and corporate officers bylaws and a management structure it issues shares of company stock its owners cannot be held personally or financially liable for claims by creditors or against the company | |
what is the difference between an s corp and a c corporation c corp | c corps pay corporate taxes on their earnings the way individuals pay income taxes in the u s corporations are currently taxed at a flat rate of 21 25 any dividends or other profits are then distributed to shareholders with after tax funds s corps by contrast are generally exempt from federal tax on most earnings so they can distribute more gains to stockholders in return for this tax benefit s corps face certain irs mandated restrictions the bottom lines corps are a common type of legal entity recommended for small businesses they carry the tax advantages of partnerships while providing the limited liability protections of corporations sort of a corporate lite structure they are easy to establish and simpler to maintain than regular c corporations s corps require many of the protocols and incur many of the costs associated with regular corporations starting with the fees and formalities associated with incorporation they are definitely more expensive to establish and time consuming to maintain than llcs another popular small business structure though advantageous for fast growing firms they are also subject to certain restrictions on their size and shareholders by the irs which could eventually inhibit their expansion the good news is that it s relatively easy for an s corp to change to c corp status should business conditions prove favorable to do so | |
what is the s p 500 index | the s p 500 index or standard poor s 500 index is a market capitalization weighted index of 500 leading publicly traded companies in the u s the index includes 503 components because three have two share classes listed it s not an exact list of the top 500 u s companies by market cap because the index includes other criteria the s p 500 index is nonetheless regarded as one of the best gauges of prominent american equities performance and the stock market overall investopedia julie bangweighting formula and calculation of the s p 500the s p 500 uses a market cap weighting method that gives a higher percentage allocation to companies with the largest market capitalizations 1determining the weighting of each component of the s p 500 begins with calculating the total market cap for the index by adding together the market cap of every company in the index the market cap of a company is calculated by taking the current stock price and multiplying it by the company s outstanding shares the total market cap for the s p 500 as well as the market caps of individual companies are published frequently on financial websites saving investors the need to calculate them the weighting of each company in the index is calculated by taking the company s market cap and dividing it by the total market cap of the index 2the s p 500 is a part of the s p global 1200 family of indices other indices include the s p midcap 400 which represents the mid cap range of companies and the s p smallcap 600 which represents small cap companies the s p 500 s p midcap 400 and s p smallcap 600 combine to cover 90 of all u s capitalization in an index known as the s p composite 1500 34s p 500 index constructionthe s p uses only free floating shares the shares that the public can trade when calculating market cap the s p adjusts each company s market cap to compensate for new share issues or company mergers the value of the index is calculated by totaling the adjusted market caps of each company and dividing the result by a divisor the divisor is proprietary information of the s p and isn t released to the public the s p index spx isn t a total return index and doesn t include cash dividend gains for the companies listed 5you can nonetheless calculate a company s weighting in the index and this can provide investors with valuable information you can get a sense as to whether it might have an impact on the overall index if a stock rises or falls a company with a 10 weighting would have a greater impact on the value of the index than a company with a 2 weighting the s p 500 is one of the most widely quoted american indexes because it represents the largest publicly traded corporations in the u s it focuses on the u s market s large cap sector and it s also a float weighted index which is a type of capitalization weighting company market caps are adjusted by the number of shares available for public trading 1the s p 500 s most recent rebalancing was announced on march 1 2024 and it took effect before the markets opened on march 18 2024 super micro computer and deckers outdoor replaced whirlpool corp and zions bancorporation n a respectively at that time 6s p 500 competitorsanother common u s stock market benchmark is the dow jones industrial average djia the s p 500 is often the institutional investor s preferred index given its depth and breadth the djia has historically been associated with significant equities from the retail investor s point of view institutional investors perceive the s p 500 as being more representative of u s equity markets because it includes more stocks across all sectors 500 versus the dow s 30 the s p 500 uses a market cap weighting method that gives a higher percentage allocation to companies with the largest market caps the djia is a price weighted index that gives companies with higher stock prices a higher index weighting the market cap weighted structure tends to be more common than the price weighted index across u s indexes 7nasdaq is a global electronic marketplace for trading securities several equity market indexes include stocks traded on nasdaq a given stock included in the s p 500 index may also be in one or more of the various nasdaq indexes some of the most watched nasdaq stock indices include the s p 500 is a member of a set of indexes created by standard poor s this set of indexes is like the russell index family in that both are market cap weighted unless stated otherwise as in the case of equal weighted indexes there are two significant differences between the construction of the s p and the russell families of indexes standard poor s chooses constituent companies via a committee russell indexes use a formula to select which stocks to include there s no name overlap within s p style indices such as growth versus value russell indexes will include the same company in both the value and growth style indexes 910the vanguard 500 index fund aims to track the price and yield performance of the s p 500 index by investing its total net assets in the stocks that make up the index and by holding each component with approximately the same weight as the s p index the fund barely deviates from the s p in this way which it s designed to mimic 11the s p 500 is an index so it can t be traded directly anyone who wants to invest in the companies that are included in the s p must invest in a mutual fund or exchange traded fund etf that tracks the index such as the vanguard 500 etf voo limitations of the s p 500 indexone of the limitations of the s p and other market cap weighted indexes occurs when stocks in the index become overvalued they rise higher than their fundamentals warrant the stock typically inflates the overall value or price of the index if it has a heavy weighting in the index while being overvalued a company s rising market cap isn t necessarily indicative of its fundamentals it simply reflects the stock s increase in value relative to the shares outstanding equal weighted indexes have become increasingly popular as a result each company s stock price movements have an equal impact on these indexes 12example of the s p 500 market cap weightingthe individual market weights must be calculated by dividing the market cap of each company by the total market cap of the index to understand how the underlying stocks affect the s p index here s an example of apple s weighting in the index the larger the market weight of a company the more impact each 1 change in a stock s price will have on the index s p doesn t provide the total list of all 503 components on its website just the top 10 | |
why is it called standard and poor s | the first s p index was launched in 1923 as a joint project between the standard statistical bureau and poor s publishing the original index covered 233 companies the two companies merged in 1941 to become standard and poor s 177 | |
what companies qualify for the s p 500 | a company must be publicly traded and based in the united states to be included in the s p 500 index it must also meet certain requirements for liquidity and market capitalization have a public float of at least 10 of its shares and have positive earnings over the trailing four quarters 1 | |
how do you invest in the s p 500 | the simplest way to invest in the s p 500 index or any other stock market index is to buy shares of an index fund that targets it these funds invest in a cross section of the companies represented on the index so the fund s performance should mirror the performance of the index itself the bottom linethe s p 500 index is one of the most widely used indexes for the u s stock market these 500 companies represent the largest and most liquid companies in the u s from technology and software companies to banks and manufacturers the index has historically been used to provide insight into the direction of the stock market it was created by a private company but the s p 500 is a popular yardstick for the performance of the market economy at large | |
what is the s p 500 dividend aristocrats index | the s p 500 dividend aristocrats index is a list of companies from the standard poor s 500 index the s p 500 that have a track record of raising their dividends for at least 25 consecutive years each company is equally weighted within the index 1understanding the s p 500 dividend aristocrats indexthe s p 500 dividend aristocrats index tracks the performance of well known mainly large cap blue chip companies standard poor s will remove companies from the index when they fail to increase dividend payments from the previous year the index is rebalanced quarterly in january april july and october 2the s p 500 dividend aristocrats includes stocks with a float adjusted market capitalization of at least 3 billion and an average daily trading volume of at least 5 million in addition to consistently increasing dividend payments the index requires a minimum of 40 companies and currently has 66 constituents as of july 31 2023 3the strength of the dividend aristocrats lies in their ability to continually increase dividend payments to shareholders when compared to the s p 500 itself the aristocrats index has not outperformed the s p 500 in either 1 year 3 year or 5 year annualized returns as of aug 28 2023 4one criticism of companies on the dividend aristocrats list is they sometimes use share buybacks to facilitate dividend increases the problem is a true dividend aristocrat should increase payouts to shareholders from year to year and if the company is overpaying for its shares it may not be acting in shareholders best interests even if dividends are increasing s p 500 dividend aristocrats constituentsdividend aristocrats come from various industries and sectors and are of varying ages though of course they have to have been in business for a quarter century at least some companies have booked dividend growth for decades such as emerson electric co emr which sells electronic products and engineering services to industrial clients 5other companies like roper technologies rop a designer of software and other products and a o smith aos which makes water heating and purification equipment became eligible in 2018 6in jan 2023 nordson corp ch robinson worldwide inc and j m smucker co were added to the index 7while the dividend aristocrats index tends to feature well known firms being a blue chip stock doesn t guarantee inclusion a company can be dropped from the index if it does not increase its dividend for one year or if it is removed from the broader s p 500 index 8 the 2008 recession in particular caused the removal of many big name companies from the list like bank of america bac general electric ge and pfizer pfe 9as of july 31 2023 nearly half of the s p 500 dividend aristocrat companies fall into one of two sectors industrials 24 1 or consumer staples 22 8 materials 12 5 financials 11 and healthcare 10 4 are other significant sectors here are the 10 leading individual companies as of july 31 2023 10investing in the s p 500 dividend aristocratsexchange traded funds etf are a popular way of gaining exposure to the list of dividend aristocrats one popular fund that directly follows the index is the proshares s p 500 dividend aristocrats etf nobl other funds that track dividend stocks but don t directly follow the index include the ishares select dividend etf dvy the spdr s p global dividend etf wdiv and the ishares core high dividend etf hdv even though they re not trying to track the index each fund tends to include some of the aristocrats since the universe of steadily rising dividend issuers isn t all that diverse | |
how do i invest in the s p 500 dividend aristocrats | the best way to invest in the s p 500 dividend aristocrats index is by investing in a fund that tracks the index such as one of the many spdr aristocrats etfs | |
what is proshares s p 500 dividend aristocrats | proshares s p 500 dividend aristocrats is an exchange traded fund etf issued by proshares that seeks to replicate the s p 500 dividend aristocrats index it allows individuals seeking returns in the index to be able to invest in it without having to outright purchase the separate shares of each company in the index | |
does the s p 500 pay dividends | as the s p 500 is an index you cannot invest directly in it you can however invest in funds that track the index such as the spdr s p 500 etf when you invest in these funds they pay out the dividends to you the bottom linefor dividend investors investing in funds that track the s p 500 dividend aristocrat index could be a good strategy as the index is made up of companies that have consistently been raising dividends for at least 25 years dividends add a strong income component value to stocks | |
what is a safe deposit box | a safe deposit box or safety deposit box is an individually secured container usually a metal box that stays in the safe or vault of a federally insured bank or credit union safe deposit boxes are used to keep valuables important documents and sentimental keepsakes protected customers rely on the security of the building and vault to safeguard their contents | |
when you rent a safe deposit box the bank gives you a key to use in tandem with a second guard key held by a bank employee to access the box if your bank uses a keyless system you will scan your finger or hand instead either way you will have to provide some type of identification and your key if it s not a keyless system every time you visit the bank to access the box | an individual can rent a box in their name only or they can add other people to the lease co lessors on a safe deposit box will have equal access and rights to the contents of the box for example people who have an addiction financial marriage and or judgment issues may not be ideal candidates some institutions allow access to be set up so that both or all lessors must be present to open the safe deposit box experts recommend designating someone with power of attorney who can access the safe deposit box 1safe deposit boxes are a good place to keep your hard to replace documents such as contracts and business papers military discharge papers and physical stock and bond certificates along with small collectibles and family heirlooms keep in mind that the largest safe deposit boxes are usually just 10 inches by 10 inches and two feet deep good things to store in your safe deposit box are important items that you won t need frequent access to including safe deposit boxes can t be accessed 24 7 so it s best not to put anything in them that might be needed in a hurry advantages and disadvantages of a safe deposit boxsafe deposit boxes are undoubtedly more secure than most people s homes bank vaults of course are harder to break into and are located in secure areas with alarms video cameras and top notch locks they re also reinforced to withstand fire floods hurricanes tornadoes and other natural disasters although safe deposit boxes are designed to withstand natural disasters it s a good idea to put anything that could be damaged by water in a waterproof container such as a zippered plastic bag to add another layer of protection it s best to store items in a safe deposit box that won t be needed in an emergency passports medical directives the only copies of wills and powers of attorney among other documents are better kept in a secure spot such as a fireproof home safe you re better off keeping the following items out of your safe deposit box it s also unwise to store cash or similar investments in a safe deposit box since these won t be earning interest you would actually be losing money due to the bank s leasing fees to get the most out of your money you consider looking for the best high yield savings accounts the contents of a safe deposit box are not insured in the same way as a bank or credit union deposits the federal deposit insurance corporation fdic insures cash deposits up to a certain limit but due to the fact that there is no way to verify the contents of a safe deposit box banks will not insure their contents 23 also if heirs are not told about the location of the drawer upon non payment the box is considered abandoned and its contents are turned over to the state s unclaimed property offices for auction 4offers safe storage of important documents and other valuables provides enhanced security with guards cameras and alarm systems that may not be available at home unlike bank accounts the contents are not insured safes can only be accessed during the bank s business hours contents can still be lost due to fire flood or other disasters special considerationssafe deposit boxes have been offered by banks for some 150 years with various other types of safekeeping offered long before that however fewer people today are renting safe deposit boxes opting instead for digital storage and home safes this can make it easier to find an available box or more difficult if your bank no longer offers them betty riess a bank of america spokeswoman said demand for boxes has dropped significantly especially among younger customers who are more likely to rely on digital storage according to riess fewer than half of her company s safe deposit boxes are rented some banks now offer the boxes for free depending on the type of account and your balance | |
how much does a safe deposit box cost | the cost of a safe deposit box will depend on the size of the box the bank the city it is located in and of course availability rough estimates place the average cost of a box at a commercial u s bank between 15 and 350 per year 5can a bank open your safe deposit box unlike customer bank accounts safe deposit boxes are not explicitly regulated or insured by federal banking law your bank may be able to force your box open in response to a court order search warrant account delinquency or bank closure your safe deposit agreement or state law may specify certain circumstances and procedures that the bank must follow when it opens a box without the customer present 6 | |
what should you not keep in a safe deposit box | while safe deposit boxes are a good place to store sentimental valuables and important documents they should not be used for anything that is irreplacable or that you might need in a hurry living wills advance medical directives and durable powers of attorney are a poor choice for a safe deposit box if they are the only copies cash is also a bad choice since you can earn interest by putting it in a savings account the bottom linesafe deposit boxes are an additional service offered at some banks for an annual fee customers can rent a box to store their valuables and important documents in the bank s vault but this protection is not absolute unlike regular bank accounts safe deposit boxes are not insured or protected by federal regulations | |
what is a safe harbor | a safe harbor is a legal provision to sidestep or eliminate legal or regulatory liability in certain situations provided that certain conditions are met the phrase safe harbor also has uses in the finance real estate and legal industries the term safe harbor may also be used to refer to a shark repellent tactic used by companies who want to avert a hostile takeover the company may purposefully acquire a heavily regulated company to make themselves look less attractive to the entity that is considering taking them over safe harbors are also accounting methods that avoid legal or tax regulations or one that allows for a simpler method of determining a tax consequence than the methods described by the precise language of the tax code understanding safe harborsa safe harbor may refer to a strategy used by companies that are trying to thwart a hostile takeover in many cases a company will make special amendments to its charter or bylaws that become active only when a takeover attempt is announced or presented to shareholders with the goal of making the takeover less attractive or profitable to the acquiring firm safe harbor provisions as they relate to regulatory liability appear in a number of laws or contracts for example under the regulatory guidelines of the securities and exchange commission sec safe harbor provisions protect management from liability for making financial projections and forecasts in good faith similarly individuals with websites can use a safe harbor provision to protect themselves from copyright infringement cases based on comments left on their websites types of safe harborssafe harbor 401 k plans feature simple alternative methods for meeting non discrimination requirements created by the 1996 small business job protection act these retirement accounts were created in response to the fact that many businesses were not setting up 401 k plans for their employees because the non discrimination policies were too difficult to understand these 401 k plans give the employer safe harbor from compliance concerns by providing them with a simplified product typically the internal revenue service irs requires taxpayers to treat remodels as capitalized improvements the value of which generally must be claimed slowly over a long period of time however restaurants and retailers often remodel their facilities on a regular basis to help their businesses look fresh and engaging as a result the irs allowed some restaurateurs and retailers the ability to claim these expenses as repair costs which can then all be deducted as business expenses in the year they were incurred safe harbor accounting methods to reduce taxes is not intended to avoid taxes only to minimize them within the bounds of the law because of this tax filers had to review a long list of requirements to determine into which category their expenses fall and the process was confusing to eliminate confusion the irs created a safe harbor accounting method for eligible retail and restaurant businesses essentially these businesses can now choose if their remodeling costs fall into the repair or capitalized improvement categories due to this safe harbor businesses don t have to worry about accidentally making the wrong selection and later being penalized for it example of a safe harborto illustrate a safe harbor accounting method that helps a tax filer sidestep a tax regulation assume a firm is losing money and cannot thus claim an investment credit it transfers the credit to a company that is profitable and can claim the credit the profitable company leases the asset back to the unprofitable company and passes on the tax savings | |
what is a safe haven | a safe haven is a type of investment that is expected to retain or increase in value during times of market turbulence investors seek out safe havens in order to limit their exposure to losses in the event of market downturns however assets that are deemed safe havens can vary depending on the specific nature of the down market so investors should perform ample due diligence to pinpoint the right safe haven for their needs 1understanding safe havensa safe haven investment can diversify an investor s portfolio and may be beneficial in times of market volatility often when the market rises or falls it is for a short period of time however there are times such as during an economic recession when the downturn of the market is prolonged when the market is in turmoil the market value of many investments can fall steeply | |
when such systemic events occur some investors look to buy safe haven assets that are uncorrelated or negatively correlated to the general market during times of distress while most assets are falling in value safe havens either retain or increase in value | examples of safe havensa number of investment securities are considered to be safe havens for years gold has been considered a store of value as a physical commodity it cannot be printed like money and its value is not impacted by interest rate decisions made by a government because gold has historically maintained its value over time it serves as a form of insurance against adverse economic events when an adverse event occurs that lingers for a while investors may decide to pile their funds into gold which drives up its price 2also when there is a threat of inflation the value of gold increases since it is priced in u s dollars 3 other commodities such as silver copper sugar corn and livestock are negatively correlated with stocks and bonds and can also serve as safe havens for investors treasure bills t bills are debt securities that are backed by the full faith and credit of the u s government and hence are considered safe havens even in tumultuous economic climates t bills are also seen as risk free as any principal invested is repaid by the government when the bill matures investors therefore tend to run to these securities during times of perceived economic chaos 4regardless of the state of the market consumers are still going to purchase food health products and basic home supplies therefore companies operating in the defensive sector will typically retain their values during times of uncertainty as investors increase their demand for these shares examples of defensive stocks include utility healthcare biotechnology and consumer goods companies arguably cash is considered the only true safe haven during periods of a market downturn however cash offers no real return or yield and is negatively impacted by inflation some currencies are considered safe havens in volatile markets investors and currency traders may seek to convert holdings of cash into these currencies for protection the swiss franc is considered a safe haven currency 5 given the stability of the swiss government and its financial system the swiss franc usually faces a strong upward pressure stemming from increased foreign demand switzerland has a large safe and stable banking industry a low volatility capital market virtually no unemployment a high standard of living and positive trade balance figures switzerland s independence from the european union also makes it somewhat immune to any negative political and economic events that occur in the region incidentally switzerland is also a tax haven for the wealthy who take advantage of the country s high security and anonymous banking features to evade taxes and hide potentially ill gotten funds 6in addition to the swiss franc and depending on the particular challenge the market is facing the japanese yen and the u s dollar usd are also considered safe haven assets 78 often the u s dollar is a default safe haven for companies facing any domestic currency uncertainty due to the fact that it is the world s reserve currency and the denomination for many international business deals in a year as tough on equities and bonds as 2022 morgan stanley noted that the u s dollar played its safe haven role as expected and helped to diversify portfolios as a result of its negative correlation with global equities in fact the investment banking firm pointed out that the safe haven dollar s power to diversify had even increased as the 120 day correlation between the usd and u s stocks reached its lowest point since april 2012 9real estate such as a home and real estate investment trusts reits can also make good safe haven investments special considerationsthe assets listed above are not guaranteed to maintain their values during periods of market volatility furthermore what constitutes a safe haven changes over time for example if an entire economic sector is performing poorly but one company within that sector is performing well its stock could be considered a safe haven investors should carry out due diligence when looking to invest in safe havens an asset that is considered a safe haven in a downturn may not necessarily be a good investment when the stock markets are rising | |
are safe havens good for my portfolio | they can be one of the ways that you can diversify your portfolio to protect against risk safe havens offer stable returns during unstable times though their low risk comes with lower potential returns they can provide stability when high risk investments stumble | |
how does inflation impact safe havens | inflation erodes the purchasing power of investments even safe havens of particular concern would be a rising inflation rate concurrent with a drop in investment account value even though safe havens may not drop as much as some other investments they still suffer from inflation s power to eat away at value | |
is a safe haven worth it | it depends on what you want in an investment a safe haven is a lower risk lower return investment that can help diversify a portfolio and offset to some degree the greater risk of investments that offer the potential for higher returns having both types of investments makes sense for many investors the bottom linesafe haven investments can be a smart choice for many investors however it s important to understand that while safe havens can offer stability and even increasing value during market downturns they can also provide less of a return during periods of market strength due to their lower risk | |
what is a sale | a sale is a transaction between two or more parties that involves the exchange of tangible or intangible goods services or other assets for money in some cases assets other than cash are paid to a seller in the financial markets a sale can refer to an agreement made by a buyer and a seller regarding a financial security its price and specific arrangements for its delivery regardless of the context a sale is essentially a contract between a seller of a product or service and a buyer who is willing to pay a specified amount for it investopedia yurle villegas | |
how a sale works | a sale occurs whenever a seller of goods or services transfers ownership of and title to a product or service to a buyer in exchange for a specific amount of money or other assets to complete a sale both the buyer and the seller must agree to the specific terms of the transaction these terms can include the price quantity method of delivery and time of delivery importantly the good or service that is being offered must be available for exchange the seller must have the legal authority to transfer ownership of the item or service to the buyer if one party transfers a product or service to another without receiving compensation in return the transaction is more likely to be treated as a gift or a donation particularly from an income tax perspective 12every day millions of people take part in countless sales transactions across the globe this creates a constant flow of assets and forms the backbone of the world s economies types of salesto complete a sale both the buyer and seller must be deemed competent the product or service must be legally available to buy and the seller must have the authority to transfer it to the buyer both parties must agree on the terms of the sale ways to payin general there are three main ways to pay for anything included in a sales transaction example of a sale | |
when an individual purchases a first home the sale occurs when the closing documents are signed money exchanges hands and the new owner gets the key | however many activities lead up to that final legal exchange of money for property these include the would be buyer s contacts with a realtor and with a representative of a lending institution to obtain financing additional sales can extend from the initial sale process for example once a home loan is made to the buyer the lending institution may then sell that loan to another institution as an investment the mortgage may eventually wind up in a bundle of similar investments called mortgage backed securities which are then sold on to other investors | |
what are the basic elements of a sale | the elements of a sale might involve the request by a consumer to buy an item of interest from a seller the seller could provide information about the product to the buyer including price quality any warranty and return policy the buyer and seller must agree on the terms of the sale the buyer then provides payment and takes possession of the item | |
when is a sale complete | normally a sale is considered complete when the agreed upon price is paid and the product is handed over to the buyer this often includes a signed receipt as proof of the agreement can a sale involve something other than an exchange of goods the word sale is commonly used to advertise a reduction in the price of goods or services to make them more attractive to potential buyers the bottom linethe merriam webster dictionary defines a sale as the transfer of ownership of and title to property from one person to another for a price 3millions of sales take place every day the many types of sales transactions support the financial health of consumers businesses and governments sales drive the well being of economies and nations all over the world they are the bedrock of successful commerce | |
what is a sales and purchase agreement spa | a sales and purchase agreement spa is a binding legal contract between two parties that obligates a transaction to occur between a buyer and seller spas are typically used for real estate transactions but they are found in other areas of business the agreement finalizes the terms and conditions of the sale and it is the culmination of negotiations between the buyer and the seller understanding a sales and purchase agreement spa before a transaction can occur the buyer and the seller negotiate the price of the item to be sold and the conditions for the transaction the spa is a framework for the negotiation process the spa is often used in cases of a large purchase such as a piece of real estate or frequent purchases over a period once signed the spa is a legally binding document between the parties typically the spa will be prepared and overseen by an independent third party to facilitate the transactions closing the agreement also records when the final sale is to occur contents of a spadepending on the size of the transaction there may be a substantial amount of content within a single spa here are some examples of what you may see in a spa a spa outlines the specific asset that is being sold in the case of real property the physical location i e address parcel numbers are identified this section is less robust for the sale of duplicative goods that can easily be interchanged a spa defined the exchange price of the transaction in addition the agreement outlines what portion of the sale price is due as an upfront deposit as well as how that deposit will be made this section of the agreement also outlines how the remaining balance total purchase price less deposit will be paid a sale and purchase agreement may also be referred to as purchase and sale agreement in this context a spa is the exact same as a psa for the sale of larger assets there is often a section within the spa requiring the purchaser to acknowledge their due diligence within the process the psa may outline additional due diligence periods that may correspond to additional deposits or upfront payments this section also likely includes indemnification statements and the purchaser s acknowledgment of the condition of the assets the purchaser also usually certifies their right to terminate the deal under certain circumstances last this section may include clarification on who within the purchaser s team has the authority to make representations on behalf of the company a spa generally outlines the next steps in the transactions these conditions of the sale must occur in order for the sale to be legally binding any inaction or fail to follow these conditions is considered a breach of contract under these circumstances the purchaser may have the right to terminate the sale if such rights are identified in the section prior many of these covenants surround risk mitigation and protection of the asset this section often outlines what a seller must do if there is any unforeseen litigation impacting the transaction it also outlines what insurance requirements should cover the asset through sale what warranties will continue to exist and certifies the exclusivity of the asset being sold there may be circumstances in which communication is needed to explain what each party will do if the asset being sold is damaged prior to sale or during transit this section often defines different levels of damage such as minor damage and major damage then the contract outlines various remedies for each level of damage if applicable there may be other sections to a spa real estate transactions will often include title and survey information regarding the property specific covenants and conditions may include language involving existing tenants or current conditions of the space a spa often outlines applicable broker commissions including the dollar amount to be paid a spa also details who is responsible for paying commissions as well as the process and timing of issuing those payments a spa can be a single page or it can span hundreds of pages with dozens of supporting exhibits the purpose of a spa is to outline at relevant terms and conditions if there aren t many the document may be short if there are many expect lots of reading for transactions that require confidentiality a spa outlines the conditions of the deal this includes the stipulations around public or press releases use of promotional materials referencing the sale and remedies in the event one party breaches this aspect of the contract if the sale is contingent on other transactions a spa will outline the effects of termination in any sale should the other deal fall through for example imagine a real estate developer attempting to purchase two properties side by side with the intention of demolishing both to create one building the developer may include language in one spa holding the deal contingent on the execution of the other spa examples of spas in the marketplaceone of the most common spas occurs during real estate transactions as part of the negotiation process a final sales price is agreed upon by both parties additionally other items relevant to the transaction such as a closing date or contingencies are also included 1spas are used by large publicly traded companies in their supply chains a spa may be used when obtaining a large number of materials from a supplier or in the case of a large scale single purchase for example a company may enter into a spa with a supplier to purchase a defined quantity of goods for a specific price a spa may also function as a contract for revolving purchases such as a monthly delivery of raw materials inventory or other tangible goods the purchase selling price can be set in advance even if the delivery is set at a later date or spread out over time spas are set up to help suppliers and purchasers forecast demand and costs and they become more critical as the transaction size increases in another example a spa is often required during a transaction in which one business is acquiring another because the spa specifies the exact nature of what is being bought and sold the agreement may allow a business to sell its tangible assets to a buyer without selling the naming rights associated with the business 2 | |
what is a sales and purchase agreement | a sales and purchase agreement is a legally binding agreement obligating a buyer and a seller to terms of a transaction the spa outlines all of the terms and conditions of the exchange and must be signed by both parties |
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