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 the “Life Only” Option on Annuities?

Choosing the “Life Only” option will turn your annuity balance into income that will be paid only to you, and will last only as long as you live. Annuities can be turned into income streams that are guaranteed to either remain the same or to increase based on an inflation-adjustment rider. The payout rate will be determined based on the length of the annuitant’s life expectancy, the amount being converted to income, whether annual increases are part of the contract, and what provisions are made for beneficiaries or joint annuitants. Continue reading...

Can I Take a Loan From my Cash-Balance Plan?

The IRS permits such loans, but it is rare to find a plan that allows it. In the vast majority of cases, you cannot. Though the IRS permits it, the administrative burden of a defined benefit plan is already significant for an employer, and it is much more likely that they will not make a provision for loans in the plan document. As far as the IRS is concerned, generally speaking, these plans have the same rules as other qualified plans. If a small partnership or LLC with a cash balance plan wants to put loan provisions into their plan document, they can do it. Continue reading...

What is Income Tax Payable?

Income Tax Payable is an account on a company’s ledger where they reserve amounts that will be used to pay the tax liability in the current quarter or year. This account tends to be separate from payroll taxes and sales taxes. This account will typically be empty at the end of the fiscal year. Corporations must pay income taxes based on their gross income, and the funds to pay them are held in the Income Tax Payable account on their company ledger. Continue reading...

What is IRS Publication 334, Tax Guide for Small Business?

IRS Link to Publication — Found Here The Tax Guide for Small Businesses is a 50-page booklet designed to help small businesses navigate the forms and publications needed to file their taxes. There are many nuances to filing small business taxes, and many kinds of small businesses, so this form comes into use quite often. The Tax Guide for Small Businesses includes instructions and a list of documents and forms which will help small businesses file their taxes. Continue reading...

What is the Broadening Wedge Descending (Bearish) Pattern?

What is the Broadening Wedge Descending (Bearish) Pattern?

The Broadening Wedge Descending pattern forms when a security price makes lower lows (1, 3, 5) and lower highs (2, 4), forming two downward sloping lines that expand over time (kind of like a pointed down megaphone shape). This pattern may form when large investors spread out their selling over a period of time, and the Breakout can occur in either direction. When the initial selling occurs, other market participants react to falling price and jump on the bandwagon to participate. Then the value investors begin to sell, believing the price has not fallen enough, which spurs the original large investor to resume selling again. Continue reading...

What does 'Outstanding Shares' mean?

Outstanding shares refers to all of the shares of company held in total, which includes all ownership - retail investors, institutional, the company’s officers, insiders, and so on. Outstanding shares are listed on the balance sheet under “Capital Stock,” and are used in calculating market capitalization, earnings per share, and other critical per share calculations. The amount of outstanding shares can fluctuate over time on the basis of corporate actions, such as share buybacks (reduces overall count) or new share issuance (increases overall count). Continue reading...

What are Mortgage-Backed Securities?

Mortgage-backed securities (MBS) are products that bundle mortgages together and are traded like securities for sale on the markets. Typically investment banks build these products by bundling mortgages with different interest rates and risk premiums, with the hope of the investor gaining a higher yield than can be found from traditional risk-free products, like U.S. Treasuries. Mortgage-backed securities got an infamous name during the 2008 financial crisis, as many of the packaged loans were subprime in nature. Many MBS products lost incredible value during the crisis, particularly following ruling FAS 157, which required banks to mark their value to market. Continue reading...

B+/B1 — credit tating

B+/B1 — credit tating

B+ — S&P / Fitch B1 — Moody’s B+/B1 is within the range of ratings given to High Yield Bonds, also known as Junk bonds. B+/B1 is the 14th rating rating from the top rating of AAA/Aaa in the scales used by the Big Three credit ratings institutions, which are Fitch, Moody’s and S&P. They evaluate the fundamentals of companies, municipal entities, and their bond contracts to determine how much risk of default is present. The limit for the category of Investment Grade bonds is BBB-, and there are a few categories of BB above B. Continue reading...

What is a strike price?

What is a strike price?

A strike price names the price of the underlying security in options or derivative contract at which the underlying security will trade at settlement if it is exercised. In a call option, for example, the option would name a strike price, and if the current market price of the underlying security was more than the strike price, an investor who held the call contract would invoke his right to purchase the stock from the issuer/seller of the option at the strike price, which, remember is lower than the prevailing market price in this example, and the investor can turn around and sell it in the market at or near its most recent, and higher, price, for a profit. Continue reading...