Net income is the amount of earnings left over once expenses have been deducted from sales. In short, it is the net amount of profit or loss. It is calculated by taking total earnings in a period (such as a quarter), and deducting all elements of the cost of doing business (labor, depreciation, fixed expenses, overhead, etc…) Net income is ultimately a measure of a company’s profitability, and its calculation should be scrutinized closely to ensure all expenses are being accounted for accurately. Continue reading...
Duration refers to the amount of time before a fixed income product will return the investment (principal and interest) to the investor. The bigger the duration number, the greater the interest-rate risk or reward for bond prices. For example, an investor should generally expect to receive better interest from a 30-year duration bond versus a 10-year, since the investor has to hold the note for longer to receive all interest payments and principal. Continue reading...
Fixed income funds may not be used for income at all, but are relatively safe investments that primarily consist of dividend-paying bonds. Fixed income funds, also known as bond funds, invest primarily in bonds, but might also include some preferred stock, which pays regular dividends and behaves much like debt instruments. In fact, there are also Preferred Stock Funds and ETFs that fit into this category. Continue reading...
Fixed annuities, generally speaking, are annuity products that give the purchaser of the annuity the guarantee of fixed income payments for life. Annuities must come with the option to be paid out in equal payments either over a certain number of years or the lifetime(s) of the annuitant(s). This is the case for variable and fixed annuities, and these payments will be fixed and guaranteed. Where they differ is how they are invested before any annuitization takes place. Continue reading...
Annuities are financial products/contracts generally sold by insurance companies to protect an investor’s assets against downside market risk and long life expectancies. Investors have to pay premiums/fees in order to secure the guarantees. Annuities are very important investment instruments, and can be an indispensable part of your overall investment portfolio. Keep in mind that annuities are very aggressively marketed, and it is very important to understand exactly how they work. Continue reading...
A fixed income security is one designed to pay interest/coupon payments on a predetermined basis, or a fixed schedule. Fixed income securities are often used by late stage retirees who need safe, reliable income streams. Fixed income securities still have risk, such as interest rate risk where if interest rates rise the price of a fixed income security can fall. Examples of fixed income securities are U.S. Treasuries, municipal bonds, or CDs. Because fixed income products carry relatively low risk, it generally translates into relatively lower returns. Continue reading...
Annuities are financial products developed and sold generally by insurance companies, and they are designed to protect an investor’s principle against the risks of market fluctuations and longevity (life expectancy). Annuities get their names from a series of payments which are based on an annualized payout rate. Annuities formerly just offered fixed payments for life, like a pension, and they were developed by life insurance companies who would use their mortality tables to determine the payout rates. Continue reading...
There are six major currencies traded and used as benchmarks on Forex markets: United States Dollars, Euros, Yen, British Pounds, Australian Dollars, Canadian Dollars, and Swiss Francs. There are also relationships between these and others, known as currency correlations. Currency exchange rates can be fixed or floating, and this is determined by policy within the country and how they want to value their money. Continue reading...
When budgeting for companies, some expenses are fixed overhead and some are variable, which depend on the amount of work being done. The direct cost of materials and labor are a good example of variable costs that will fluctuate with production levels. There may be an equation that the company can use to reliably predict these variable costs, but they are not fixed costs. From an accounting perspective, of course, these costs would be in separate sections. Fixed costs include warehousing, depreciation, insurances, rent, taxes, salaries, and so forth. These can be put into the budget before anything else happens or any orders have been taken for the year. The variable costs must be taken into account on the fly. Continue reading...
Generally associated with mutual funds and exchange traded funds, the expense ratio represents the total annual management fee. The expense ratio is the annual management fee charged to shareholders by ETFs and mutual funds. The annual fee typically comprises the annual management fee, 12b-1 fees (which are associated with research costs), operating costs, and all other administrative type fees that go into the product. The expense ratio encompasses all of these fees as one percentage. Continue reading...
Operating expenses are the costs a company incurs as a part of everyday business operations. The goal of most every management team is to figure out how a company can minimize operating expenses while maximizing production and profitability. Operating expenses can involve buying inventory, the cost of running machines, rent, payroll, and so on. What it costs a company to undergo normal business operations and output. It is sometimes referred to as OPEX. Continue reading...
Keeping track of your expenses is one of the most important (and basic) steps to leading a responsible financial life. It might be tempting to “eyeball” your expenses and somehow get by without a plan, but in almost all cases, such carelessness will spell financial disaster. Budgeting your money for specific categories of expenses and carefully documenting the actual spending is critical. You should add up amounts spent on monthly mortgage and car payments, rent, groceries, clothing, entertainment, utilities, transportation, and other miscellaneous expenses, and try to get as close to possible to a monthly budget. Continue reading...
Yes and no. Avoid putting too much faith in “best” lists, but realize that at least three of these are probably going to irrefutable and fundamentally sound bits of advice, and probably delivered in a timely manner. Generally speaking, there is no such thing as the “best ways” to invest. However, such articles can help you to land on some timely strategies that you may not have acted on without prompting. Continue reading...
Depreciation is the accounting practice of recording the decreasing value of a fixed asset, such as a building or piece of equipment, over time, or, effectively, spreading the tax deduction for the cost of the asset over time. The IRS has created set schedules which describe the number of years over which a business can amortize the cost of a business asset for the purpose of tax deductions. The number of years is different for each type of asset or equipment. Continue reading...
There may be fees and commissions involved in the purchase of ETFs, and ongoing expenses that reduce earnings over time. Purchasing an ETF will probably involve paying some fees or commissions to the service or broker through which you acquired the shares, but these days those commissions are fairly minimal. These fees will be the same or less than you might pay for using their services to acquire positions in other securities. ETFs are a relatively cheap way to gain an exposure to a particular sector of the market or to take a position that might otherwise be difficult and expensive to research, calculate, and engineer. Continue reading...
Medicare Part A is the standard, baseline hospital coverage that comes at no cost as part of everyone’s Medicare benefits. It will pay for inpatient stays at hospital and skilled care facilities, but only for a certain number of days. Medicare Part A is hospitalization and inpatient care insurance. It will pay fully for about 20 days of care, but only if there is an inpatient procedure first and the patient appears to be convalescing. If the patient is not gradually recovering, their Medicare benefits will be suspended. Continue reading...
Diversification is intended to reduce the volatility of price movements in individual securities, but many people are not sure what proper diversification looks like. It depends. You should definitely have exposure to at least two asset classes: equities and bonds. Within each asset class, diversification is also important. In your equity portfolio, you should have exposure to stocks with various capitalizations (such as Large Cap, Mid Cap, and Small Cap), various geographical areas (such as the Europe), Developing Markets, and Emerging Markets. Continue reading...
If you buy and sell securities, you may qualify for tax status as a ‘trader,’ which importantly may qualify you for certain business tax breaks. The rules governing this status can be confusing, however, making it difficult to determine whether you qualify as a trader, investor, or dealer. Let’s take a closer look at the qualifications for traders as defined by the IRS, as well as how to report income and expenses if qualified. Continue reading...
IRS Link to Form — Found Here Form 2106 is the long-form way to request deductions for unreimbursed business expenses incurred by an employee in the course of work. This can include professional affiliation dues, continuing education, insurances, vehicle mileage and depreciation, and other possible deductions. Often, employees are not reimbursed for every out-of-pocket expense they incur in the course of their work. This might include wear and tear on a vehicle, professional dues, travel expenses, business meals, and many more items. For any amount to go towards a tax deduction, the itemized unreimbursed expenses must be over 2% of adjusted gross income. Continue reading...
IRS Link to Publication — Found Here Businesses can refer to Pub. 535 to get a better grasp on what expenses can help lower their corporate tax bill. Many of the costs required to do business can be deducted or depreciated. The guide addresses employee compensation, inventory, research and development, and much more. Many of the expenses that could fall into the category of “overhead” can be deducted by a business. Continue reading...