What are the Different Types of Annuities?
There are fixed annuities, fixed/indexed annuities, variable annuities, hybrid annuities, income annuities, period income annuities, and possibly more. Insurance companies, and the insurance subsidiary wings of investment companies, have had many years to develop strategies and marketing ploys that help clients accumulate, protect, and distribute assets within various kinds of annuities. Variable annuities allow the annuitant to participate in the market through mutual funds — or, more accurately, “separate accounts” that mimic mutual funds. Continue reading...
What are the Contribution Limits for My Keogh Plan?
The contribution limit for a Keogh Plan depends on what type of Keogh Plan you set up. There are Defined Contribution and Defined Benefit Keoghs. Defined Contribution plans could be profit-sharing or money-purchase plans. As of 2013, a Defined Contribution Keogh Plan allows the employer to contribute up to 25% of your income, or $53,000, whichever is less, and this will constitute the profit-sharing or money-purchase aspect of the plan. 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 Cash Flow to Debt Ratio?
The cash flow to debt ratio measures a company’s operating cash flow versus its total debt. It is a useful tool for measuring a company’s ‘coverage,’ which looks at how well equipped a company is to meet its ongoing debt obligations (interest payments, for example) based on the amount of cash it generates through sales/service. There are different methodologies for calculating the ratio, but the most conservative are using free cash flow as the numerator and all redeemable debt (short-term, long-term, preferred stock) as the denominator. Continue reading...
What is Freddie Mac?
Freddie Mac is a government-sponsored company which purchases mortgages from banks and securitizes them for sales to investment banks or individuals. Freddie Mac is not a government organization, but was established by a congressional mandate in the 1970’s. It’s proper name is the Federal Home Loan Mortgage Corporation (FHLMC). The company’s purpose is to make mortgage debts into marketable securities by purchasing the mortgage risk and cash flow from banks and dividing into tranches which are sold to or through investment banking institutions. The securitized mortgages are known as Collateralized Mortgage Obligations, or CMO’s. Continue reading...
Who is a Bill Collector?
Collections companies are known as Bill Collectors, and their jobs are to extract as much payment from those who are past-due on payment obligations as they can to settle an account or to bring it current. When people do not pay their credit card companies back within about 150 days, the card company will pass the debt off to a collections company. Other businesses who do their own billing will also sometimes find it necessary to pass off the obligation to the collections company. Continue reading...
What are Federal Reserve Regulations?
The Fed has been commissioned with upholding the directive of the Federal Reserve Act. The Fed is technically an independent institution from the US Government, even though it works hand-in-hand with the Treasury Department on monetary policy issues. It functions partially as a self-regulatory organization for the banking industry, and the Regulations, which are named with letters of the alphabet, are meant to protect consumers, member banks, and the economy as a whole. The leadership of the Fed is comprised of both government appointees and private sector banking leaders. Continue reading...
What is a Margin Account?
A margin account is one in which an investor uses borrowed money to purchase additional securities. An investor is almost always required to use the securities in the account as collateral for the borrowed money. The objective of a margin account is for the investor to magnify gains, but the opposite can also be true, and losses may lead the investor to have to sell securities in the account to cover the loan balance. There’s more upside in a margin account, but there’s more downside too. Continue reading...
What are Small Cap Mutual Funds?
Mutual funds that invest heavily in companies that are small, but not micro-size, can be described as small cap funds. A small capitalization mutual fund primarily invests in small companies. Small companies are usually defined as companies with market capitalization of under $2 billion. The companies in this category are larger than those in the “micro” and “nano” cap categories. A mutual fund investing in small cap companies will generally experience higher price volatility than both mid cap and large cap mutual funds. Over time, small cap companies as a group have tended to outperform the broader market, so the higher risk is associated with higher return. Continue reading...
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