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What is Due Diligence?
Due diligence is the responsibility of the investor and broker to research all pertinent information about the individual's, investments, and companies involved prior to doing business. Due diligence is a responsibility and also a legal defense. If a fiduciary person or company is accused of negligent or criminal behavior, it may be a good defense to show a document trail of research about the people, companies, and investments involved in a transaction. Continue reading...
What does FDIC Insured mean?
The Federal Deposit Insurance Corporation (FDIC) is a government entity created by the Glass-Steagall Act of 1933, and its purpose is to protect savers from losing their deposits in banking institutions if the bank becomes insolvent. FDIC insurance only covers certain types of assets, up to certain limits for each person, and only at member banks. FDIC insurance will “make whole” any deposit amount up to $250,000 per person if the banking institution that held the funds declares insolvency. Most banks are members of the FDIC program, which was established by the Federal government in the 1930s. Continue reading...
What is the Investment Company Act of 1940?
The ‘40 Act, as it’s sometimes called, defined and delineated rules for investment companies, which today are known as mutual funds, investment trusts, ETFs, and so on. The ‘40 Act, along with the Securities Act of 1933, and the Securities Exchange Act of 1934, have formed the foundation for regulation in the investment industry in the US. The ‘40 Act defines investment companies and stipulates how they are to represent themselves and disclose information about the funds they sell to the public. Continue reading...
What is Investment Banking?
Investment banking activity is different than traditional banking. Investment banks often serve as intermediaries that underwrite a new issue of stock and help to distribute it. They also trade in their own accounts, run hedge funds, and generally invest and speculate in ways that most institutions can’t. Investment banks can assist with new issues of stocks and bonds, purchasing large blocks of them to distribute at a premium. Continue reading...
What Health Insurance Do I Need if I Don't Have a Job?
Unemployed people are still required to have health insurance. Under the Affordable Care Act (ACA), you will likely qualify for a federal subsidy to help you pay for it. Younger people can buy a catastrophic policy, which offers minimal coverage but can still help prevent eroding all of your savings in the event of a major accident. How Much Will Individual Health Coverage Cost? What is Medicare Part D? Continue reading...
What Were the Causes and Consequences of the Stock Market Crash of 1929 and the Great Depression?
The Stock Market Crash of 1929 and the Great Depression: Causes and Consequences. The decade, known as the "Roaring Twenties," was a period of exuberant economic and social growth within the United States; however, the era came to a dramatic and abrupt end in Oct. 1929 when the stock market crashed, paving the way for America's Great Depression of the 1930s. Continue reading...
What is the definition of USD (United States Dollar)?
Unlock the secrets of the United States Dollar (USD) - from its intriguing origins as the "greenback" to its global dominance today. Dive into its complex relationship with gold, international significance, and evolving role in the modern economy. Discover the power behind the $1 bill's nicknames and unravel the USD's captivating journey through history and finance. 🌐💰 #USDExplained Continue reading...
What is the Glass-Steagall Act?
The Glass-Steagall Act was passed in 1933 to place a dividing wall between commercial banking and investment banking. It was in an effort to protect consumers and the economy from the risks of speculative investment banking. JP Morgan and other large institutions were targeted. The act was partially repealed and replaced in 1999 by the Gramm-Leach-Bliley Act. After 2008, some opined that the repeal of the original act contributed to the financial crises, and they instituted the Volcker Rule, which reinstated part of the original Glass-Steagall act. Continue reading...
What Is the Securities and Exchange Commission?
The Securities and Exchange Commission (SEC) is a cornerstone of the U.S. financial regulatory framework, established in response to the devastating stock market crash of 1929 that led to the Great Depression. This article explores the SEC's core functions, structure, historical significance, and its role in safeguarding the integrity of the U.S. securities markets. The primary mission of the SEC is to protect investors and maintain the fair and efficient operation of the securities markets. To achieve this, the SEC enforces a set of rules and regulations that promote transparency, ensure the provision of accurate information, and combat fraudulent practices. Continue reading...
What is an Investment Banker?
Investment bankers are proficient analysts themselves, but they have subordinate financial analysts that crunch the numbers for them. They are primarily in the business of procuring clients for deals such as IPOs which their investment bank will underwrite. Investment bankers are employees of investment banks whose role is to acquire clients for the bank and to be the liaison between clients and the back office of the investment bank. Continue reading...
Where can I get information about private placements?
The short answer is, you can’t. Private placements have no reporting or registration requirements with the SEC or other entities. Sometimes this can be good for investors who enjoy the discretion. But it can also be a shield for unethical business people who prefer to avoid regulatory oversight. There is no source for detailed information about private placements unless you personally know a general partner who can describe to you his project, or who comes highly recommended with a lot of references. If an offering seeks to raise over $2 million in the capital in a year’s time, they are obligated under Regulation D to provide audited financial statements to the investors. Continue reading...
What if I Cannot Get Individual Coverage?
Under current law (the Affordable Care Act), everyone is eligible to receive health insurance coverage. However, not everyone may be able to afford health insurance. There are subsidies provided by the federal government for those who cannot afford it, but cost may still be an issue for many. How Much Will Individual Health Coverage Cost? Can I Purchase Individual Health Insurance? What Health Insurance Do I Need if I Don't Have a Job? Continue reading...
What is FICA?
FICA (Federal Insurance Contributions Act) taxes are handled by the Social Security Administration, as they are payroll withholdings that go toward Social Security and Medicare funds. Most people will have half of their FICA paid by their employer, but self-employed people must pay it all on their own, which is called the “Self-Employment Tax.” FICA is a tax on employees and employers that funds the Social Security and Medicare programs of the United States. Continue reading...
What are Marketable Securities?
Marketable securities is a term referring to assets / securities that can be converted to cash easily, at least within a year. Examples of marketable securities are stocks, bonds, or CDs you might buy at the bank. What makes an asset a marketable security is its ability to be redeemed for cash quickly at a known market price. What is a Broker-Dealer? What is an Illiquid Security? Continue reading...
What is an Illiquid Security?
An illiquid security is one that cannot easily be sold or exchanged for cash on a timely basis. The lack of ready buyers tends to create a fairly sizable discrepancy between what a seller wants and what a buyer is offering, versus an orderly market where assets change hands at high volumes and therefore have high liquidity. An illiquid security should generally be held only if the investor/owner has a long-time horizon, and therefore can handle the risk of not being able to offload the asset easily. Continue reading...
What Is the Social Security Act?
The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, is a cornerstone of the U.S. social safety net. This landmark legislation created a system of benefits for retired individuals, the jobless, and those with disabilities, while also providing aid to dependent mothers and children, victims of work-related accidents, and people with visual or physical impairments. Prior to this groundbreaking act, the federal government's involvement in such social welfare programs was minimal, primarily limited to pensions for veterans. Continue reading...
What Is a Stock Market Crash?
Stock market crashes have posed a threat to both U.S. financial markets and citizens throughout history. Here is a timeline detailing each event. When a stock market crashes, it represents the culmination of a complex array of events that drive unexpected results. Markets can often absorb unexpected events, but if the level of uncertainty implied by these economic events spurs many investors to act out of fear, a market crash is far more likely to happen. Continue reading...
What is the Investment Advisors Act of 1940?
The IAA sought to regulate an industry that was deemed to be of public concern and within the Federal jurisdiction, though it did define some state-specific jurisdictions. It defines investment advisors and made laws dealing with fraud, advertising, non-public client information, disclosures, handling of client funds, and so forth. The Investment Advisors Act of 1940 established definitions for the capacity in which an investment adviser and investment advice could be defined, and made rules concerning the standards by which advisors should operate. Continue reading...
What was the Best Day for the Markets?
The best day for the markets, in terms of the largest single-day point gain for the Dow Jones Industrial Average, was October 13th, 2008. It happened when the Dow closed up 936 points in response to seemingly positive news about the handling of the ongoing financial crisis. The market would fall much further however before the next uptrend began, on March 9, 2009. In percentage terms, the biggest gain for the Dow came on March 15, 1933, when the index shot up over 15% (8.26 points) in response to Franklin D. Roosevelt's (FDR) Emergency Banking Act. Continue reading...
What is a Security?
A security is a marketable ownership contract which entitles the owner to the right to use the contract as a type of currency backed by a specific asset, which could be partial ownership in a company, a debt (bond), or a derivative interest. Securities are broadly categorized into debt securities (e.g., bonds), equity securities (e.g., stock), and derivatives (e.g., futures, options, etc.). They will generally be issued by a company or government entity and will entitle the owner of the contract the right to trade the ownership interest for value in the open market. Continue reading...