What Rights Does Owning Shares of Corporation Give You?
Shareholders of a company are part-owners of the company, and they are entitled to two things: voting for board members, and participation in earnings. Owning shares (even one single share!) of a publicly-traded corporation entitles you to the right to vote in elections for the Board of Directors, as well as the right to receive a proportional amount of all the profits of the company. These rights apply to common stock, which is generally the kind of stock traded on exchanges. Of course, you also have the right to sell your shares on the stock exchange at any time, in what is known academically as the Secondary Market. Continue reading...
What are the Vesting Rules for my SEP IRA?
All SEP contributions are immediately vested for employees. SEPs are funded entirely by employer contributions, and these contributions are immediately vested for the employee. In other words, the contribution belongs to you immediately after it has been made, notwithstanding standard withdrawal rules. Withdrawal rules for a SEP are the same as those for Traditional IRAs. Continue reading...
What are the Vesting Rules for My Money Purchase/Profit Sharing Plan?
Different plans will have different vesting schedules, within regulatory guidelines. The IRS imposes certain rules on Money Purchase/Profit Sharing Plans, which includes vesting restrictions. Different employers might have totally different vesting schedules, as long as they satisfy the IRS rules. Vesting means that the employer contributions to a plan become the property of the employee, and the employee will be allowed to keep ownership of those assets even if the employee changes jobs before retirement. ‘Graduated vesting’ or ‘cliff vesting’ may be used. Continue reading...
What does Ticker Mean?
A ticker symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock or security on whatever market it trades on. Stocks are usually represented by a combination of letters (typically 3-4), ETFs are generally identified with 3 letters, and mutual funds often have 5-letter combinations that end in the letter “X”, but they can also be alphanumeric. A ticker can consist of a combination of letters, numbers, and sometimes (but not often) both. Continue reading...
What is a Warrant?
A warrant is an agreement giving the holder the right to buy (or sell) a certain number of shares of a company. Warrants are often requested or granted when a company engages in a loan from private investors - it will give the lenders the opportunity to buy and own shares in the company if its stock appreciates or if the opportunity seems attractive. If the company fails to grow and deliver, the warrants can simply go unused with no financial impact for the holder. Like options, there are warrants that confer the option to buy shares (call warrants) and those that allow the holder to sell (put warrants). Continue reading...
What are Debt Ratios?
Debt ratios give a relative picture of a company’s ability to repay debts, make interest payments, and meet other financial obligations. They generally compare the level of debt in a company to the level of assets. Debt ratios are key for investors and particularly creditors, to determine the overall level of financial risk faced by a company. Debt ratios that increasingly turn unattractive can serve as “canaries in a coal mine” that a company is in danger of bankruptcy or default. There are several types of debt ratios, such as debt-to-equity, debt-to-capital, cash flow to debt, and so on. Continue reading...
What does Leverage Mean?
Leverage is the use of borrowed capital or debt to try and increase the potential return of an investment. An individual might leverage an investment account by going on margin to purchase additional securities, whereas the amount of debt used to finance a company’s assets is considered to be that company’s level of leverage. A firm with significantly more debt than equity is considered to be highly leveraged. 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 a Zero Coupon Bond?
A Zero Coupon Bond is one that does not make interest payments - the bondholder only receives the face value back at time of maturity. The bond purchaser typically pays a deep discount for the bond, and the gain made over the life of the investment is the difference between the amount paid for the bond and the face value returned to the investor when the bond matures. What is a Bond Coupon? Is There Anything Else I Need to Know About Bonds? Continue reading...
How old should my portfolio manager Be?
While we do not doubt that a young advisor can be intelligent and helpful, there is really no substitution for experience and tenure. Generally speaking, it’s a good idea to choose a manager who has experienced various market cycles. Younger advisors who have never helped their clients through a recession may not be as humble, prudent, or knowledgeable as ones who have. If you can find an advisor with over 10 years of experience, we would recommend that over an advisor with only 3, all other things being equal. There are advisors and wealth managers with only a few years under their belts but who have learned a lot in a short time. Continue reading...