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What is an ETF? Definition

What is an ETF? Definition

ETFs are very popular and useful investment vehicles that offer affordable diversification and professional portfolio management. An ETF is a basket of securities that is designed to ‘mimic’ the performance of an index, sector, or category of securities. For example, the ETF with ticker SPY is designed to track the performance of the S&P 500, and the company that creates the ETF (in this case Barclays iShares) builds the ETF simply by purchasing the 500 stocks in the S&P 500. Investors can purchase shares of the ETF as a means of gaining instant access to all 500 stocks in the S&P 500, thus tracking its performance. Continue reading...

What is a Lump-Sum Distribution from a 401(k)?

Lump sum distributions are when the entire balance of an account is paid out at once. After you retire, you can elect to receive your money in a lump sum. Of course, you will end up paying income taxes on the entire distributed amount that year. There is also what’s called the mandatory 20% withholding, which requires custodians to withhold 20% from retirement plan distributions if they are not part of a trustee-to-trustee transfer (such as funding an IRA). Continue reading...

How Does a 401(k) Compare With Other Retirement Plans?

There are several types of retirement plans that employers can provide, but 401(k)s are one of the most popular. Other employer-sponsored retirement plans include SIMPLEs, SEPs, and various kinds of defined benefit plans. SIMPLE IRAs are sometimes called SIMPLE 401(k)s, because they operate under the same laws as Safe Harbor 401(k)s. They both are primarily employee-funded, and have rigid standards for employer contributions. Continue reading...

What does Bid Mean?

When you make a ‘buy offer’ on a stock or other security in the financial markets, you are making a Bid. A Bid offer in terms of financial markets is the price offered by an investor or trader for a security. A market maker will try to reconcile Bid offers (the highest prices that buyers are willing to pay) with Ask offers (the lowest price that a seller is willing to accept). Match the Bid and the Ask offers, and you’ve got a trade. Continue reading...

What Does it Mean to have a "Duty of Best Execution"?

To have a “duty of best execution” means that a broker or entity fulfilling a trade request has to do so at the best possible execution for their client. The ‘duty of best execution’ is more than just a guideline - it’s an SEC law. Broker-dealers must report quarterly to the SEC on how they route customers' orders, to ensure compliance. "Best execution” refers to both timing and price. What is the Fiduciary Standard? What is the Suitability Standard? How do Advisors Charge and How Much Should I Pay? Continue reading...

What is Paid-Up Capital?

Paid-up capital is the money (‘capital’) collected by a company from issuing shares of their stock. In other words, its money raised from issuing and selling stock. Paid-in capital is not money borrowed, but rather money invested in the company by shareholders. A company will generally issue shares of stock with a par value and an offer price, and paid-up capital represents the difference between total dollars invested and par value of the shares. Continue reading...

What is Pari-Passu?

“Pari-passu” is a Latin phrase meaning “equal footing,” typically in reference to treatment of creditors or beneficiaries when assets are distributed. Some examples of pari-passu in practice would be bankruptcy proceedings when credits are given ‘equal access’ to assets of the company, or in a probate hearing when assets are divided equally amongst beneficiaries. Continue reading...

What is an Income Annuity?

What is an Income Annuity?

Income annuities are used by people in retirement to give them a steady, dependable stream of income until they die. It is a financial product sold by a life insurance company, which serves as a kind of longevity insurance, so that people cannot outlive their money. People often roll lump sums from 401(k)s into these plans. Though inflexible, the income payout rate is designed to be appealing when compared to most retirement investments. Continue reading...

What is the ‘Risk-Free Rate of Return’?

The risk-free rate of return is the rate an investor can get on a risk-free asset at a given time. It is usually the current yield on a 10-year treasury, which is backed by the full faith and credit of the US Government and is considered risk-free. The risk-free rate is used in several calculations and considerations in finance, to show what return can be earned in the current market environment without being exposed to any risk. Continue reading...

What is Lifetime Cost?

Lifetime cost is the total amount of money that a good will cost a consumer over the entire course of ownership. This included related, add-on costs such as maintenance, fuel, insurance and so on. These costs can dwarf the actual purchase price of the item. Lifetime cost is also known as total cost of ownership (TCO), and it is a budgetary way to look at the expenses that go along with the purchase of an item. Continue reading...