EDU Articles
Popular articles
What is Form 6781: Gains and Losses from Section 1256 Contracts and Straddles?
IRS Link to Form — Found Here Form 6781 is used to calculate and report gains and losses due from Section 1256 contracts, which covers futures on commodities and indexes, as well as their derivatives, and from straddles, which are options strategies defined under Section 1092. 6781 is used to report positions in futures and options at the end of the year even if no gains or losses were realized through trades. The value of the positions will be marked-to-market at the end of the year, and these will serve to compute the gains and losses for these purposes. Continue reading...
What is Long-Term Debt?
Long-term debt refers to the duration of a liability/amount owed, and to qualify it must be due at least 12 months out. The period is in reference to 12+ months from the date of the balance sheet. A company will typically take on long-term debt in the form of a mortgage for property owned, or as capital for growth raised through bond sales or other debentures. Continue reading...
What does Capital Gain Mean?
A Capital Gain refers to the profits or gains made from selling a security at a higher price than the original purchase price. In stock trading, if an investor sells a stock for more than they bought it for (or the price inherited), the profit realized is a capital gain. The same applies to gains made in real estate. To note, assets held within tax-deferred accounts, like IRAs and 401(k)s, do not trigger capital gains when sold for profits. It only applies to taxable assets, like stocks held in a brokerage account. The capital gains tax is the tax paid on net capital gains in a given year. Continue reading...
What will Long-Term Care Insurance Cover?
Long-term care insurance is designed to pay benefits for the elderly in need of daily medical services, such as an at-home nurse, room and board in an assisted living facility, adult daycare, respite care, hospice care, and/or medical supplies needed for daily living. Depending on the insurance company offering the services and the policy selected, the menu of benefits will vary. The more benefits offered the higher the premium for the policy. Continue reading...
What is residual income?
Residual income is a stream of income that persists from one work project or investment. Residual income is also known as passive income, and is income which comes from an investment of money or work in the past, where minimal or no additional money, work, or maintenance is required. Residual income could come from investments such income-generating real estate, or work completed such as a published book or acting in a commercial. Continue reading...
How Much Will Long-Term Care Insurance Cost?
The cost of long-term care insurance varies depending on the policy and the age of the insured. Generally speaking, however, the insured can expect to pay between a hundred to several hundred dollars a month. Typically the total cost adds up to at least a few thousand dollars per year. Furthermore, you will be required to continue paying the premium through your retirement (until you begin using the insurance), and if you fail to pay the annual fee, you might lose some or all of your coverage (regardless of how much you have paid up to that point). Continue reading...
Should I Buy a Long-Term Care Policy?
Whether you should own a long-term care insurance policy depends on a myriad of factors, including but not limited to affordability, family medical history, your liquid net worth and your cash flow needs in retirement. It also depends on your ability to make consistent premium payments to ensure your policy stays in force over time. Since a Long-Term Care plan requires you to keep paying the (steep) premium until you actually start to use the coverage – or you’ll lose it, it may not be a great idea to buy the policy if you have financial insecurities in the near (or even distant) future. Continue reading...
What Does Having a Long Position Mean?
A long position in a security means owning shares and having a positive investment balance in a stock, bond, commodity, etc. This is done by simply buying and owning the investment. An investor with a long position in a stock will benefit financially when the price of the stock rises. What is a Short Position? What is Short Selling? Continue reading...
What Provisions Should a Long-Term Care Policy Contain?
Long-term care insurance policies can be structured in any number of ways, depending on your desired coverage. More coverage equals more premium cost, but may save you money later in life if you use your policy for a number of years. There are a variety of provisions (also known as riders) to consider, including but not limited to the dollar amount of your daily benefit (usually $200 - $500), whether it is a reimbursement or paid in full, which facilities qualify for coverage, what kind of assistance you’ll provided, whether or not it includes a nurse on duty 24 hours a day, access to a doctor, whether you’ll have a room to yourself or not, and so on. Continue reading...
At What Age Should I Buy Long-Term Care Insurance?
Generally speaking, the earlier you purchase long-term care insurance the less expensive it will be in terms of monthly premium. Investors in good health should start thinking about long-term care insurance as part of their overall financial plan around their late 40’s/early 50’s. Medical history also plays a role. If your parents needed daily medical care later in life, then you should consider purchasing a long-term care policy sooner than later. Continue reading...
What if My Long-Term Care Insurance Doesn’t Pay for My Expenses?
Most long-term care insurance policies are designed to mitigate the cost of long-term assisted living care, not to cover the entire daily cost. Retirees should plan to absorb some of the cost themselves, assuming that daily supervised care is needed. That being said, if you own a long-term care insurance policy and the insurance company is refusing to pay benefits for the care you need, then you may have a fight ahead of you. Continue reading...
What Does Capital Loss Mean?
Capital Loss refers to a loss realized when a security is sold for less than it was purchased for. In stock trading, if an investor purchases stock ABC for $30 / share, and then sells the stock a few months later for $22 / share, they have realized an $8 / share capital loss. At the end of every year, as per U.S. tax policy, capital losses can be used to offset capital gains, so as to help an investor reduce their tax burden. A common year-end strategic approach is to “harvest” capital losses in an effort to offset any capital gains made from trading that year. Continue reading...
What is Turnover Ratio?
Turnover ratio is a term that can be used in reference to the rate at which a company goes through its physical inventory, or that a mutual fund sells and replaces its investment holdings. In the context of a company’s inventory of goods, a high turnover ratio is a positive sign. It means that a company is selling plenty of its products and is not wasting money on more warehousing space than it needs. This kind of turnover ratio is calculated as the cost of goods sold in a period divided by the average inventory during that time. In the context of mutual funds and ETFs, turnover ratio is a negative thing if it is high. Continue reading...
What is an Annuity?
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...
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 an Unrealized Gain?
Gains and losses are only "real" when shares are sold or withdrawals are made, but up until that point the gains were more of a notional amount, and are said to be "unrealized." A more salient way to understand unrealized gains is to look at the opposite: unrealized losses. If a person makes an investment of $1,000 and the value of the shares drops sharply the next week, has the person lost any money? The answer of course is no, not unless he sells the shares and takes the lower market price for them. Continue reading...
What is IRS Publication 544 on Sales and Other Dispositions of Assets?
IRS Link to Publication — Found Here This guide is a reference for the tax implications of sales, transfers, barters, exchanges, forfeits, repossession, condemnation and abandonment of property. Where gains or losses are manifested, the guide helps to differentiate between capital gains and ordinary gains, as well as how to figure and report the gains or losses. Often when people sell or dispose of property in various manners there is a question of what the tax implications are, how much of the transaction is taxable, and whether any amount of it can be applied toward tax deductions. This guide, Publication 544, will outline all of the necessary filing forms and reporting practices for almost any kind of sale or disposition of property. Continue reading...
What are the Basics of Annuities?
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...
What is Dividend Capture?
Dividend capture is a strategy similar to dividend arbitrage that seeks to reap incremental gains somewhat reliably around the ex-dividend date of a stock. The investor seeks to benefit from the fact that stock prices don’t always go down as much as they should on the ex-dividend date, so by selling quickly at that point, the investor may still get a small gain from the dividend that will still be paid to him or her. Dividend capture is a strategy that plays on slight inefficiencies in prices around the ex-dividend date. Continue reading...
What is Dividend Arbitrage?
Arbitrage opportunities can be found in a few different places in the market, when risk-free profit can be made. If a stock is purchased before the ex-dividend date, and a put is exercised when the share price falls after the dividend is distributed, it is known as dividend arbitrage. Arbitrage is when an investor finds a situation where one thing can be exchanged for another, such as the same thing on two different exchanges or similar fixed instruments which can be swapped, when no risk is taken and a profit is gained. Continue reading...