BOARD CERTIFICATION EXAM STUDY GUIDES Lower Extremity Trauma
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Asking a “Financial Advisor” if they’re a fiduciary isn’t always enough to hire them. People can “ice skate” around that terminology and give fuzzy or unclear answers to that question. Instead, you may consider asking them to sign a fiduciary oath.
“If someone is fee-only, not “fee-based”, they shouldn’t have a problem signing a document stating how they get compensated.” “If someone is, for example, a broker dealer, insurance agent or investment advisor who works on commissions, they probably wouldn’t be allowed to sign it.” Just say NOT to contract arbitration clauses, too! As well as “Dual Registration”. Remember Bernie Lawrence Madoff.
THE FIDUCIARY OATH
This one-page document outlines five fiduciary principles a financial adviser must follow to put the client’s interests ahead of their own. They include acting with prudence, not misleading the client, avoiding conflicts of interest, and disclosing and managing unavoidable conflicts.
The oath, meant to be printed out and signed by an adviser, has been around for several years. But recent events, such as the 5th Circuit Court of Appeals striking down the DOL rule, have increased the urgency to get it into circulation.
“With the 5th Circuit ruling, it is just so important to have this oath out there because it states fiduciary principles,” said Ms. P. Houlihan, president of Houlihan Financial Resource Group. “The oath is the answer, given that the DOL rule is gone.”
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements.
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DEFINITION: The meaning of meme stocks is sort of self-explanatory: hyped stocks that perform well. But from a fundamental perspective, they shouldn’t do well at all.
For example, Reddit forums and social media hype drive meme stocks. Speculators on Twitter and Reddit united together to trade their favorite companies in hopes of driving them “to the moon.”
It may not be fair to call them speculators. These hype beasts want to buy and hold stocks of companies that might not have a great long-term outlook.
Brokerages like Robinhood helped level the playing field with apps and ‘easier’ access. That’s giving retail traders more opportunity. Robinhood traders can buy with just a few clicks on their smartphones and use partial positions to buy chunks of stocks.
Financial Investing risk is any of various types of risk associated with financing, including financial transactions that include company loans in risk of default. Often it is understood to include only downside risk, meaning the potential for financial loss and uncertainty about its extent.
Although broad investing risks can be quickly summarized as “the failure to achieve spending and inflation-adjusted growth goals,” individual assets may face any number of other subsidiary risks:
Call risk – The risk, faced by a holder of a callable bond that a bond issuer will take advantage of the callable bond feature and redeem the issue prior to maturity. This means the bondholder will receive payment on the value of the bond and, in most cases, will be reinvesting in a less favorable environment (one with a lower interest rate)
Capital risk – The risk an investor faces that he or she may lose all or part of the principal amount invested.
Commodity risk – The threat that a change in the price of a production input will adversely impact a producer who uses that input.
Company risk – The risk that certain factors affecting a specific company may cause its stock to change in price in a different way from stocks as a whole.
Concentration risk – Probability of loss arising from heavily lopsided exposure to a particular group of counterparties
Counterparty risk – The risk that the other party to an agreement will default.
Credit risk – The risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation.
Currency risk – A form of risk that arises from the change in price of one currency against another.
Deflation risk – A general decline in prices, often caused by a reduction in the supply of money or credit.
Economic risk – the likelihood that an investment will be affected by macroeconomic conditions such as government regulation, exchange rates, or political stability.
Hedging risk – Making an investment to reduce the risk of adverse price movements in an asset.
Inflation risk – The uncertainty over the future real value (after inflation) of your investment.
Interest rate risk – Risk to the earnings or market value of a portfolio due to uncertain future interest rates.
Legal risk – risk from uncertainty due to legal actions or uncertainty in the applicability or interpretation of contracts, laws or regulations.
Liquidity risk – The risks stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.
OK – I was a Certified Financial Planner® before my academic team launched the Certified Medical Planner™ online and on-ground chartered education and board certification designation program a few years ago. I am now CFP reformed and in remission.
Enter the Certified Medical Planner™ CharteredDesignation
Today, we are of course, gratified that Certified Medical Planner™ mark notoriety is growing organically in the healthcare, as well as financial services, industry.
Even uber-blogger Mike Kitces MSFS, MTAX, CFP, CLU, ChFC, RHU, REBC, CASL has taken note of us in his musings on the Nerd’s Eye View website. And, the reality is that there are a growing number of CFP educational programs at the post-CFP niche market level.
But, none for healthcare industrial complex: for doctors … by doctors!
Popularity of our Text Books
However, it is our modern, innovative and proprietary Certified Medical Planner™ textbooks and dictionaries that have exploded in the academic marketplace.
In fact, they are now redacted in thousands of medical, graduate, law and B-schools and libraries, as well as colleges and universities throughout the nation. This includes the Library of Congress, National Institute of Health and the Library of Congress.
What Gives?
We have been told that this textbook popularity and publishing success is because of their balanced and peer-reviewed nature; something not very widespread in the financial services industry that is prone to gross and overstated advertising, salesmanship and marketing hyperbole. And, for this we are very gratified.
But, is there another reason our books are so popular?
A bit of networking and research suggests that interested folks may be eschewing the actual course work in favor of just the high quality textbooks! UGH!
So, what do you think? Matriculation with the professional mark versus self study without the designation mark. Please opine.
Conclusion
Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements.
Subscribe: MEDICAL EXECUTIVE POST for curated news, essays, opinions and analysis from the public health, economics, finance, marketing, IT, business and policy management ecosystem.
One of the world’s most prolificoffshore tax havens is locatedmore than 1,000 miles from any shore.
The US state of South Dakota now rivals notorious tax shelters like Panama, the Cayman Islands, and Switzerland as a destination for the top 0.01% to shield their wealth from the grubby hands of tax authorities, the newly released Pandora Papers show.
Quick recap: The Pandora Papers, published one week ago, represent one of the biggest leaks of financial docs in history. They show how celebrities, world leaders, and business magnates take advantage of opaque financial laws to hold onto as much of their wealth as they can…and, in some cases, get away with crimes.
And while none of that is particularly surprising, what is surprising is the changing geography of tax havens. The ultrarich are taking their money out of traditional tax shelters like the island of Jersey (one of the Channel Islands) and stashing it in rural US states like Nevada, Wyoming, and, most of all…South Dakota.
Of the more than 200 US trusts appearing in the Pandora Papers, 81 were located in South Dakota.
South Dakota’s trust industry held $367 billion in anonymous, untraceable assets in 2020, a nearly 4x increase from $75.5 billion in 2011. And these trusts aren’t catering to cattle ranchers who made it big—they’re linked to individuals in 40 different countries outside the US.
The bigger issue? 28 US-based trusts are linked to individuals or companies accused of misconduct overseas, such as money laundering, bribery, and human rights abuses, per the Washington Post.
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And now the question you’ve all been waiting for…
Why South Dakota?
It’s not why most people arrive in South Dakota—by accident. For decades, the state has intentionally loosened regulations on its financial services sector to grow its economy and create finance jobs, particularly in the city of Sioux Falls.
This deregulation push, spurred by trust industry insiders, turned a South Dakotan trust into “the most potent force-field money can buy,” wrote the Guardian’s Oliver Bullough.
By setting up a trust in South Dakota…
Your assets are protected from claims by creditors, angry clients, or even your ex-spouse (a level of security not afforded by other tax havens).
You are not subject to income tax, inheritance tax, or capital gains tax in the state…because South Dakota has none of those.
You never actually have to go to South Dakota.
In sum, if you’re a shady billionaire or a corrupt president of a Latin American country with something to hide, South Dakota looks like a mighty attractive place to shield your fortune from governments.
Or, rather, the US more broadly is an attractive place to hide your wealth. After years of bashing “offshore” havens for sheltering tax avoiders, the US has moved up to second in the world rankings for financial secrecy.
Beside market, limit and stop orders, there are some other miscellaneous orders for the physician or guided investor, to know:
A stop limit order is a stop order that, once triggered or activated, becomes a limit order. Realize that it is possible for a stop limit to be triggered and not executed, as the limit price specified by the doctor may not be available.
In addition, there are all or none and fill or kill orders, and even though both require the entire order to be filled, there are distinct differences. An all or none (AON) is an order in which the broker is directed to fill the entire order or none of it.
A fill or kill (FOK) is an order either to buy or to sell a security in which the broker is directed to attempt to fill the entire’ amount of the order immediately and in full, or that it be canceled.
The difference between an all or none and a fill or kill order is that with an all or none order, immediate execution is not required, while immediate execution is a critical component of the fill or kill. Because of the immediacy requirement,
FOK orders are never found on the specialist’s book. Another difference is that AON orders are only permitted for bonds, not stocks, while FOK orders may be used for either.
Also, there exists an immediate or cancel order (IOC), which is an order to buy or sell a security in which the broker is directed to attempt to fill immediately as much of the order as possible and cancel any part remaining. This type of order differs from a fill-or-kill order which requires the entire order to be filled. An IOC order will permit a partial fill. Because of the immediacy requirement, IOC and FOK orders are never found on the specialist’s book.
Long and Short Positions
A long buy position means that shares are for sale from a market makers inventory or owned by the medical investor outright. Market makers take long positions when customers and other firms wish to sell, and they take short positions when customers and other firms want to buy in quantities larger than the market maker’s inventory. By always being ready, willing, and able to handle orders in this way, market makers assure the investing public of a ready market in the securities in which they are interested. When a security can be bought and sold at firm prices very quickly and easily the security is said to have a high degree of liquidity, also known as marketability.
A short position investor seeks to make a profit by participating in the decline in the market price of a security.
Now; let’s see how these terms, long and short, apply to transactions by medical investors [rather than market makers] in the securities markets.
When a doctor buys any security – he is said to be taking a long position in that security. This means the investor is an owner of the security. Why does a doctor take a long position in a security? Well, receiving dividend income to make a profit from an increase in the market price is one reason. Once the security has risen sufficiently in price to satisfy the investor’s profit needs, the investor will liquidate his long position, or sell his stock. This would officially be known as a long sale of stock, though few people in the securities business use the label “long sale”. This is the manner in which the above investor had made a profit is the traditional method used; buy low, sell high.
Let’s look at an actual investment in General Motors to investigate this principle further. A medical investor has taken a long position in 100 shares of General Motors stock at a price of $70 per share. This means that the manner in which he can do that is by placing a market order which will be executed at the best “available market price at the time, or by the placing of a buy limit order with a limit price of $70 per share. The investor firmly believes, on the basis of reports that he has read about the automobile industry and General Motors specifically, that at $70 a share, General Motors is a real bargain. He believes that based on its current level of performance, it should be selling for a price of between $80 and $85 per share. But, the doctor investor has a dilemma. He feels certain that the price is going to rise but he cannot watch his computer, or call his broker, every hour of every day. The reason he can’t watch is because patients have to be seen in the office. The only people who watch a computer screen all day are those in the offices of brokerage firms (stock broker registered representatives), and doctor day traders, among others.
In the above example, with a sell limit order, if the doctor investor was willing to settle for a profit of $12 per share, what order would he place at this time? If you said, “sell at $82 good ’til canceled”, you are correct. Why GTC rather than a day order? Because our doctor investor knows that General Motors is probably not going to rise from $70 to $82 in one day. If he had placed an order to sell at $82 without the GTC qualification, his order would have been canceled at the end of this trading day. He would have had to re-enter the order each morning until he got an execution at 82. Marking the order GTC (or open) relieves him of any need to replace the order every morning. Several weeks later, when General Motors has reached $82 per share in the market, his order to sell at 82 is executed. The medical investor has bought at 70 and sold at 82 and realized a $12 per share profit for his efforts.
Let’s suppose that the medical investor, who has just established a $12 per share profit, has evaluated the performance of General Motors common stock by looking at the market performance over a period of many years. Let’s further assume that the investor has found by evaluating the market price statistics of General Motors that the pattern of movement of General Motors is cyclical. By cyclical, we mean that it moves up and down according to a regular pattern of behavior.
Let’s say the investor has observed that in the past, General Motors had repeated a pattern of moving from prices in the $60 per share range as a low, to a high of approximately $90 per share. Further, our investor has observed that this pattern of performance takes approximately 10 to l2 months to do a full cycle; that is, it moves from about 60 to about 90 and back to about 60 within a period of roughly l2 months. If this pattern repeats itself continually, the investor would be well advised to buy the stock at prices in the low to mid 60’s hold onto it until it moves well into the 80’s, and then sell his long position at a profit. However, what this means is that our investor is going to be invested in General Motors only 6 months of each year. That is, he will invest when the price is low and, usually within half a year, it will reach its high before turning around and going back to its low again. How can the doctor-investor make a profit not only on the rise in price of General Motors in the first 6 months of the cycle, but on the fall in price of General Motors in the second half of the cycle? One technique that is available is the use of the short sale.
The Short Sale
If a doctor investor feels that GM is at its peak of $ 90 per share, he may borrow 100 shares from his brokerage firm and sell the 100 shares of borrowed GM at $ 90. This is selling stock that is not owned and is known as a short sale. The transaction ends when the doctor returns the borrowed securities at a lower price and pockets the difference as a profit. In this case, the doctor investor has sold high, and bought low.
Odd Lots
Most of the thousands of buy and sell orders executed on a typical day on the NYSE are in 100 share or multi-100 share lots. These are called round lots. Some of the inactive stocks traded at post 30, the non-horseshoe shaped post in the northwest corner of the exchange, are traded in 70 share round lots due to their inactivity. So, while a round lot is normally 700 shares, there are cases where it could be 10 shares. Any trade for less than a round lot is known as an odd lot. The execution of odd lot orders is somewhat different than round lots and needs explanation.
When a stock broker receives an odd lot order from one of his doctor customers, the order is processed in the same manner as any other order. However, when it gets to the floor, the commission broker knows that this is an order that will not be part of the regular auction market. He takes the order to the specialist in that stock and leaves the order with the specialist. One of the clerks assisting the specialist records the order and waits for the next auction to occur in that particular stock. As soon as a round lot trade occurs in that particular stock as a result of an auction at the post, which may occur seconds later, minutes later, or maybe not until the next day, the clerk makes a record of the trade price.
Every odd lot order that has been received since the last round lot trade, whether an order to buy or sell, is then executed at the just noted round lot price, the price at which the next round lot traded after receipt of the customer’s odd lot order, plus or minus the specialist’s “cut “. Just like everything else he does, the specialist doesn’t work for nothing. Generally, he will add 1/8 of a point to the price per share of every odd lot buy order and reduce the proceeds of each odd lot sale order by 1/8 per share. This is the compensation he earns for the effort of breaking round lots into odd lots. Remember, odd lots are never auctioned but, there can be no odd lot trade unless a round lot trades after receipt of the odd lot order.
The foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices.
In terms of trading volume, it is by far the largest market in the world, followed by the credit market.
The forex market is not dominated by a single market exchange, but a global network of computers and brokers from around the world. Forex brokers act as market makers as well and may post bid and ask prices for a currency pair that differs from the most competitive bid in the market.
The forex market is made up of two levels—the interbank market and the over-the-counter (OTC) market. The interbank market is where large banks trade currencies for purposes such as hedging, balance sheet adjustments, and on behalf of clients. The OTC market, on the other hand, is where individuals trade through online platforms and brokers.
NOTE: FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all physicians or investors.
*** DEFINITION: Prospect theory is a theory of behavioral economics and behavioral finance that was developed by Daniel Kahneman and Amos Tversky in 1979. The theory was cited in the decision to award Kahneman the 2002 Nobel Memorial Prize in Economics.
Amanda, an RN client, was just informed by her financial advisor that she needed to re-launch her 403-b retirement plan. Since she was leery about investing, she quietly wondered why she couldn’t DIY. Little does her FA know that she doesn’t intend to follow his advice, anyway! So, what went wrong?
The answer may be that her advisor didn’t deploy a behavioral economics framework to support her decision-making. One such framework is the “prospect theory” model that boils client decision-making into a “three step heuristic.”
Prospect theory makes the unspoken biases that we all have more explicit. By identifying all the background assumptions and preferences that clients [patients] bring to the office, decision-making can be crafted so that everyone [family, doctor and patient] or [FA, client and spouse] is on the same page.
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*** Briefly, the three steps are:
Simplify choices by focusing on the key differences between investment [treatment] options such as stock, bonds, cash, and index funds.
Understanding that clients [patients] prefer greater certainty when it comes to pursuing financial [health] gains and are willing to accept uncertainty when trying to avoid a loss [illness].
Cognitive processes lead clients and patients to overestimate the value of their choices thanks to survivor bias, cognitive dissonance, appeals to authority and hindsight biases.
ASSESSMENT
Much like in healthcare today, the current mass-customized approaches to the financial services industry fall short of recognizing more personalized advisory approaches like prospect theory and assisted client-centered investment decision-making.
Autumn is here, and leaves aren’t the only thing falling.
After seven months of higher monthly closes, plus one record-setting high early in the month, the benchmark S&P 500® Index wobbled its way to a 5% pullback in September. The causes were many—uncertainty emanating from Washington, inflation, supply chain problems, and softer earnings growth forecasts—and now the horizon is looking foggy as we gaze ahead toward the final months of 2021.
Shipping bottlenecks and a near-record number of job openings are raising costs and putting upward pressure on wages, which may start to hurt profit margins, and the twin specters of inflation and higher interest rates are making investors wonder when the Federal Reserve might step in to raise interest rates.
But, if there’s a potential bright spot, we have to look across the sea to the Eurozone, where the signs point toward an era of increased government spending that could be positive for global economic growth.
The stock markets have been near all time highs, lately. Physician colleagues and clients are so excited that they are even checking the overnight status of favorite stocks and/or the domestic/overseas markets.
US Stock Futures
DOW Futures
407.001.17%
Level35,191.00
Fair Value35,124.36
Implied Open66.64
S&P 500 Futures
36.250.82%
Level4,465.25
Fair Value4,477.37
Implied Open-12.12
Nasdaq Futures
107.000.71%
Level15,144.25
Fair Value15,286.71
Implied Open-142.46
Data as of October 15, 4:59 PM EDT. Based on — contract. Fair value provided by IndexArb.com.
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Some colleagues are even becoming a bit OCD by checking the implied open of various markets the night before. But, what exactly is the Implied Open? How is it calculated?
DEFINITION: The Implied Open attempts to predict the prices at which various stock indexes will open, at 9:30am New York time. It is frequently shown on various cable television channels prior to the start of the next business day.
EXAMPLE: Considering the DJIA as an example, the basis of calculating implied open is the price of a “DJX index option futures contract”. This is not the price of the DJIA itself but rather the current ticker price of an option issued by the Chicago Board Options Exchange.
CBOE: The Chicago Board Options Exchange, located at 400 South LaSalle Street in Chicago, is the largest U.S. options exchange with annual trading volume that hovered around 1.27 billion contracts at the end of 2014. CBOE offers options on over 2,200 companies, 22 stock indices, and 140 exchange-traded funds.
NOTE: We would like to remind you that new amendments adopted by the U.S. Securities Exchange Commission (SEC) have gone into effect as of September 28, 2021. These amendments restrict the ability of market makers to publish OTC quotations for those companies that have not made required current financial and company information available to regulators and investors.
Generally speaking, all income is taxable unless it’s specifically excluded, as is the case with certain gifts and inheritances. In most instances, the income you earn will be reported to both you and the government on an information return, such as a Form 1099 or W-2. If the income you report doesn’t match the IRS’s records, you could face problems down the road—so be sure you include the income from all of the following forms that are applicable to your situation:
1099-B: The form on which financial institutions report capital gains.
1099-DIV: The form on which financial institutions report dividends.
1099-MISC: The form used to report various types of income, such as royalties, rents, payments to independent contractors, and numerous other types of income.
1099-R:The form on which financial institutions report withdrawals from tax-advantaged retirement accounts.
Form 1099-INT: The form on which financial institutions report interest income.
Form SSA-1099:The form on which the Social Security Administration reports Social Security benefits (a portion of which may be taxable, depending on your level of income).
Form W-2:The form on which employers report total annual compensation, payroll taxes, contributions to retirement accounts, and other information.
If you receive an inaccurate statement of income, immediately contact the responsible party to request a corrected form and have them resend the documents to both you and the IRS as soon as possible to avoid delaying your tax return. Also, be aware that you must report income for which there is no form, such as renting out your vacation home.
When you sell an investment, you’ll need to know both the cost basis (what you paid for the investment) and the sale price to determine your net gain or loss. The cost basis of your investment may need to be adjusted to account for commissions, fees, stock splits, or other events, which could help reduce your taxable gain or increase your net loss.
Financial institutions are required to adjust your investments’ cost basis and provide that information on a Form 1099. However, brokerages aren’t required to report the cost basis for investments purchased prior to a certain date, which means you’ll be responsible for supplying that information (see the table below). Be sure to keep records of all investment purchases and sales—even those for which your brokerage is responsible.
Your reporting responsibility
Depending on security type and date of purchase, you—rather than your brokerage—could be responsible for reporting the cost basis of your investment to the IRS.
Fear of money: An abnormal and persistent fear of money. Sufferers experience undue anxiety even though they realize their fear is irrational. They worry that they might mismanage money or that money might live up to its reputation as “the root of all evil.” Perhaps they remember well the ill fortune that befell the mythical King Midas. His wish that everything he touched be turned to gold was fulfilled, and even his food was transformed into gold.
The fear of money is termed chrometophobia or chrematophobia, from the Greek “chrimata” (money) and “phobos” (fear). The “chrome” in “chrometophobia” may also be related to the Greek word “chroma” (color) because of the brilliant colors of ancient coins — for example, gold, silver, bronze and copper.
October is National Financial Planning Month—an ideal time to plan your financial future. The end of the year is approaching and a new one will soon begin, so this is the right time to think about what you have done in 2021 and what you could do in 2022. You might want to do something new; you may want to do some things differently.
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GREAT NEWS:But what about financial planning specificity for physicians, nurses and all medical professionals?
BE AWARE ALL ADVISORS … NEXT GEN FINANCIAL ADVICE IS HERE?
Are you a financial planner, insurance agent or investment advisor seeking to assist your physician clients with medical practice enhancement solutions, along with healthcare targeted financial planning services, but don’t know where to turn for help?
OR, maybe you’ve already had a bad experience with a young physician or astute healthcare professional client that was actually more informed than you in these areas?
OR, a doctor/nurse client who demanded a true fiduciary advisor [not fee-based advice, with no dual licenses and no arbitration clauses] documented in writing].
I hope this note finds you well. Here at GE, September was an important month for us. We concluded our annual strategy reviews with each business, complementing the quarterly operating reviews with a longer-term focus. I had the opportunity to participate in many of the review processes and came away impressed with our progress, leadership team, and the growth opportunities that lie ahead as we innovate for the future of flight, precision health, and energy transition.
In my last investor update, I shared the exciting news that GE announced an agreement to acquire BK Medical, and in the spirit of growth and innovation, I’d like to share a few more recent business highlights that illustrate how our teams are delivering for our customers:
At Aviation, Bamboo Airways signed a Memorandum of Understanding agreement to purchase GEnx engines for its Boeing 787-9 aircraft. This order of 10 firm and 20 options, valued at a list price of approximately $2 billion, will help the airline expand its transcontinental flight network. Dang Tat Thang, CEO of Bamboo Airways, said, “The selection of the GEnx engines for our Boeing 787-9 aircraft will help increase the operational efficiency and service quality of Bamboo Airways on Vietnam-U.S. nonstop flights as well as many potential international routes.”
Renewable Energyannounced today that it received an order to supply Haliade-X turbines for Massachusetts’s Vineyard Wind 1, the first utility-scale offshore wind installation in the U.S. Additionally, our Haliade-X offshore wind prototype turbine recently became the first in the industry to operate at 14 MW, increasing our customers’ ability to produce more power from a single turbine.
Gas Powerannounced the delivery, installation, and commissioning of four TM2500 aeroderivative gas turbines in only 42 days to supplement renewable power generation for the State of California’s Department of Water Resources during peak demand season. GE’s TM2500s start and ramp up quickly in just minutes and will help enhance the reliability and sustainability of California’s grid.
We’re excited about what the future holds, as our teams are highly focused on executing for our customers, leveraging lean to drive meaningful progress and innovating for a more sustainable world.
We look forward to sharing more on our 3Q’21 earnings call on Tuesday, October 26. As always, I welcome your feedback.
Healthcare Stock and IPO Investing Can Be Confusing. The Story of Privia Health is a Good Case Study in Understanding the Underlying Economics in Healthcare Investing:
I have long recommended that consumers look for a Certified Financial Planning (CFP) certificant when shopping for a financial planner.
But don’t stop there. A CFP is no guarantee that someone is a competent, ethical, fiduciary professional. It only ensures that you are choosing from a pool of 85,000 financial services providers who are educated in the technical aspects of financial planning. It doesn’t mean the person is engaged in financial planning, is a fiduciary, or has a spotless ethical history.
In a troubling Wall Street Journal article on August 9, 2019, columnist Jason Zwieg writes that the “CFP Board’s online search directory neglected to inform the public that thousands of planners listed” have known “customer complaints, criminal histories, financial problems or regulatory proceedings.”
“Among these CFPs were 499 who have faced criminal charges, 324 who left a previous firm amid allegations of misconduct, 323 who had been disciplined or investigated by regulators and 68 who filed bankruptcy within the past 10 years,” Zweig notes. Yet none were ever disciplined by the CFP Board.
Let’s not lose perspective—these “bad apples” amount to less than 2% of CFP certificants. Every profession has those few who use its licensing and credentialing as a cover to manipulate, deceive, and abuse consumers. No amount of regulation or oversight will ever eliminate all the crooks.
In addition, you cannot simply assume because a professional has a certain license, designation, or formal degree that they are competent. In the graduate class I teach at Golden Gate University, not all students earn As and Bs. Many earn Cs. A few earn Ds and Fs. While I am not sure the D and F group ever graduate, I am sure I would not want them doing my financial planning without convincing evidence that their poor performance in my class was a one-off due to extenuating circumstances.
As the consumer, you cannot know if a prospective financial planner was that student. Nor can you know if they have a tainted criminal background, unless you dig deeper.
That digging includes looking for any past criminal or disciplinary charges brought by licensing agencies. It also includes determining whether the advisor is legally bound to a fiduciary standard—required to put your interests ahead of theirs—but has any conflicts of interest, especially by making a significant amount of their income from commissions on the sale of financial products.
Here are a few tips for digging deeper:
Go to brokercheck.finra.org to see if FINRA has brought disciplinary actions against the advisor.
Go to the SEC’s website to look for disciplinary actions.
Have the prospective advisor sign a written disclosure that you are a client and they have a fiduciary duty to put your interests above their own, rather than a customer where they have no such obligation and will usually put the interests of their company first. Many advisors, especially those not legally bound to be fiduciaries, don’t understand the difference, so insist on getting this assurance in writing.
Have the prospective advisor sign a statement disclosing what percentage of their company’s gross revenues comes from fees charged to clients. These might be paid as hourly fees, annual retainers, or separate charges for advice. The lower the percentage of income from fees, the greater the chance of a significant conflict of interest. I recommend finding firms receiving over 90% of gross revenue from fees; I prefer 100% because such firms advertise themselves as “fee-only” or will offset any commissions against a flat fee.
Assessment
To find a trustworthy financial planner, I still recommend the CFP designation. Just remember that it’s a starting point, not a guarantee.
Conclusion
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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com
What Is Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)?
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EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company’s overall financial performance and is used as an alternative to net income in some circumstances. EBITDA, however, can be misleading because it strips out the cost of capital investments like property, plant, and equipment.
This metric also excludes expenses associated with debt by adding back interest expense and taxes to earnings. Nonetheless, it is a more precise measure of corporate performance since it is able to show earnings before the influence of accounting and financial deductions.
Simply put, EBITDA is a measure of profitability. While there is no legal requirement for companies to disclose their EBITDA, according to the U.S. generally accepted accounting principles (GAAP), it can be worked out and reported using the information found in a company’s financial statements.
The earnings, tax, and interest figures are found on the income statement, while the depreciation and amortization figures are normally found in the notes to operating profit or on the cash flow statement. The usual shortcut to calculate EBITDA is to start with operating profit, also called earnings before interest and tax (EBIT) then add back depreciation and amortization.
DEFINITION: Mental accounting attempts to describe the process whereby people code, categorize and evaluate economic outcomes. The concept was first named by Richard Thaler. Mental accounting deals with the budgeting and categorization of expenditures. People budget money into mental accounts for expenses or expense categories
Mental Accounting is the act of bucketizing investments and then reviewing the performance of the individual buckets separately (e.g. investing at low savings rate while paying high credit card interest rates).
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Examples of mental accounting are: (1) matching costs to benefits (wanting to pay for vacation before taking it and getting paid for work after it was done, even though from perspective of time value of money the opposite should be preferred0, (2) aversion to debt (don’t like long-term debt for short-term benefit), (3) sunk-cost effect (illogically considering non-recoverable costs when making forward-going decisions).
In investing, treating buckets separately and ignoring interaction (correlations) induces people not to sell losers (even though they get tax benefits), prevent them from investing in the stock market because it is too risky in isolation (however much less so when looked at as part of the complete portfolio including other asset classes and labor income and occupied real estate), thus they “do not maximize the return for a given level of risk taken).
If you’ve ever listened to an early morning financial news broadcast, you’ve heard a reference to “futures” and how they affect the stock market before it opens. Physicians Investors follow the futures because it provides an indication of where stocks are headed at the opening bell. One of the most widely followed futures is the Dow Futures, whose underlying value is based on the Dow Jones Industrial Average, an index of 30 major U.S. companies.
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DEFINITION: After the markets close at 4 pm New York time, implied open prices of the Dow Jones Industrial Average, S&P 500 Index, and NASDAQ, which fluctuate from minute to minute, can be calculated.
Considering the DJIA as an example, the basis of calculating implied open is the price of a “DJX index option futures contract “.
Below is a listing of the Nine largest for-profit health insurance Companies. The Annual financial statements are linked to the year for each Company and a four page summary report is linked to the name of the health insurance company at the top of the listing.
The relevant pages in each financial statement I used to prepare my summaries are listed next to each year’s statement. Aetna and Coventry’s summaries are combined because they merged in 2012. Health Net also Merged with Centene in 2016 leaving only seven major health insurance companies.
As human beings, our brains are booby-trapped with psychological barriers that stand between making smart financial decisions and making dumb ones. The good news is that once you realize your own mental weaknesses, it’s not impossible to overcome them.
In fact, Mandi Woodruff, a financial reporter whose work has appeared in Yahoo! Finance, Daily Finance, The Wall Street Journal, The Fiscal Times and the Financial Times among others; related the following mind-traps in a September 2013 essay for the finance vertical Business Insider; as these impediments are now entering the lay-public zeitgeist.
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Anchoring happens when we place too much emphasis on the first piece of information we receive regarding a given subject. For instance, when shopping for a wedding ring a salesman might tell us to spend three months’ salary. After hearing this, we may feel like we are doing something wrong if we stray from this advice, even though the guideline provided may cause us to spend more than we can afford.
Myopia makes it hard for us to imagine what our lives might be like in the future. For example, because we are young, healthy, and in our prime earning years now, it may be hard for us to picture what life will be like when our health depletes and we know longer have the earnings necessary to support our standard of living. This short-sightedness makes it hard to save adequately when we are young, when saving does the most good.
Gambler’s fallacy occurs when we subconsciously believe we can use past events to predict the future. It is common for the hottest sector during one calendar year to attract the most investors the following year. Of course, just because an investment did well last year doesn’t mean it will continue to do well this year. In fact, it is more likely to lag the market.
Avoidance is simply procrastination. Even though you may only have the opportunity to adjust your health care plan through your employer once per year, researching alternative health plans is too much work and too boring for us to get around to it. Consequently, we stick with a plan that may not be best for us.
Loss aversion affected many investors during the stock market crash of 2008. During the crash, many people decided they couldn’t afford to lose more and sold their investments. Of course, this caused the investors to sell at market troughs and miss the quick, dramatic recovery.
Overconfident investing happens when we believe we can out-smart other investors via market timing or through quick, frequent trading. Data convincingly shows that people who trade most often underperform the market by a significant margin over time.
Mental accounting takes place when we assign different values to money depending on where we get it from. For instance, even though we may have an aggressive saving goal for the year, it is likely easier for us to save money that we worked for than money that was given to us as a gift.
Herd mentality makes it very hard for humans to not take action when everyone around us does. For example, we may hear stories of people making significant profits buying, fixing up, and flipping homes and have the desire to get in on the action, even though we have no experience in real estate.
Carried interest, or carry, in finance, is a share of the profits of an investment paid to the investment manager in excess of the amount that the manager contributes to the partnership, specifically in alternative investments (private equity and hedge funds).
In small businesses that are not blind pools, such as single property real estate, the investment manager often funds the business prior to the formation of the partnership. It is a performance fee, rewarding the manager for enhancing performance. The structure also takes advantage of favorable tax treatment in the United States.
However, critics of carried interest want it to be reclassified as ordinary income – not capital gains – to be taxed at the ordinary income tax rate. Private equity advocates argue that the increased tax will subdue the incentive to take the kind of risk that is necessary to invest in and manage companies to profitability.
A collateralized debt obligation (CDO) is a type of structured asset-backed security (ABS). Originally developed as instruments for the corporate debt markets, after 2002 CDOs became vehicles for refinancing mortgage-backed securities (MBS).
Like other private label securities backed by assets, a CDO can be thought of as a promise to pay investors in a prescribed sequence, based on the cash flow the CDO collects from the pool of bonds or other assets it owns. Distinctively, CDO credit risk is typically assessed based on a probability of default (PD) derived from ratings on those bonds or assets.
A CMO is a debt security backed by mortgages. These mortgage pools are usually separated into different maturity classes called tranches (from the French word for “slice”). The securities were issued by private issuers, as well as the Federal Home Loan Mortgage Corporation (Freddie Mac). As the mortgages were usually government-guaranteed, CMOs usually carried AAA ratings until their current financial meltdown. The early versions of CMOs were known as “plain vanilla,” but recent developments gave us PACs (planned amortization certificates) and TACs (targeted amortization certificates); among too many others. They were all variations on how principal repayments in advance of maturity date were treated.
A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC), is an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government. A DAO’s financial transaction record and program rules are maintained on a blockchain. The precise legal status of this type of business organization is unclear.
A well-known example, intended for venture capital funding, was The DAO, which launched with $150 million in crowdfunding in June 2016, and was nearly immediately hacked and drained of US$50 million in cryptocurrency. The hack was reversed in the following weeks, and the money restored, via a hard fork of the Ethereum blockchain: the Ethereum miners and clients switched to the new fork.
A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Recall Bernie Madoff.
The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own.
A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting multiplies, recruiting becomes quickly impossible, and most members are unable to profit; as such, pyramid schemes are unsustainable and often illegal.
DEFINITION: Stablecoins are blockchain-based digital currencies that have been created with the aim to have a stable value. Stablecoins achieve price-stability through various different methods such as a peg against a fiat currency or a commodity, through collateralization against other cryptocurrencies or through algorithmic coin supply management.
Every stable coin includes a specific set of mechanisms that mostly behave in the same way. In general, stable coins keep collateral of the asset and manage the supply. In this way, they incentivize the market, which allows trade of the coin for no more or less than $1.
A stable coin can be considered the best depending on several factors: It should be stable. PAX is one the most stable stablecoin. It should be liquid and available on most exchanges. It should be backed by FIAT. PAX is 100% collateralized in US bank accounts. It should be regulated. It should be redeemable.
If you’re a physician looking to get ahead on planning for retirement, you’re likely familiar with individual retirement accounts, or IRAs. An IRA is a tax-advantaged vehicle that helps you grow your retirement savings. Roth IRAs are particularly attractive, because you don’t pay taxes on withdrawals in retirement.
There’s one problem: you can’t contribute to a Roth IRA directly if you make above a certain income. A backdoor IRA, though, can solve your problem by allowing you to convert a traditional IRA into a Roth.
Here’s how it works:
First, place your contribution in a traditional IRA—which has no income limits.
Then, move the money into a Roth IRA using a Roth conversion.
But make sure you understand the tax consequences before using this strategy.
The mega backdoor Roth allows you to put up to $38,500 in a Roth IRA or Roth 401(k) in 2021, on top of the regular contribution limits for those accounts. If you have a Roth 401(k) at work (and the plan allows for the mega option as described below), generally you can choose whether the final destination of your mega contributions is the Roth 401(k) or a Roth IRA. If your employer offers only a traditional 401(k), then your mega contributions would end up in a Roth IRA.
Here’s a quick summary of what you need to have in place for the ideal mega backdoor Roth strategy:
A 401(k) plan that allows “after-tax contributions.” After-tax contributions are a separate bucket of money from your traditional and Roth 401(k) contributions. About 43% of 401(k) plans allow after-tax contributions, according to a 2017 survey of large and midsize employers by consulting firm Willis Towers Watson.
Your employer offers either in-service distributions to a Roth IRA — that is, you can take money out of the 401(k) plan while you’re still working at the company — or lets you move money from the after-tax portion of your plan into the Roth 401(k) part of the plan. If you’re not sure, ask your human resources department or plan administrator.
You’ve got money left over to save, even after maxing out your regular 401(k) and Roth IRA contributions.
The term “step-up” refers to the difference in value and tax liability that an asset has when it is acquired and when it is transferred to an inheritor.
EXAMPLE #2: The proverbial millionaire Doctor Joe, for example, could buy a home for $350,000 and sell it for $1 million, after which he’d pay taxes on the $650,000 gain. But if Dr. Joe passes the home onto his daughter Ella, and she has it appraised at $1 million, its value has taken a “step up” in value to $1 million. If Ella sells the home for $1 million or less, she wouldn’t owe anything in taxes.
ASSESSMENT: For billionaires like Jeff Bezos, Bill Gates and Elon Musk who earn far more through their investments than their salaries, this loophole is a perfect way to shield their wealth. Intergenerational wealth has contributed to surging inequality in America, which grew wider during the pandemic. Since 2019, the wealth of the top 400 richest people in the US increased by $1.4 trillion, per research from Gabriel Zucman and Emmanuel Saez, a pair of left-leaning economists at the University of California, Berkeley.
“Often, for these people, wealth accumulates tax-free their entire lives,” Frank Clemente, executive director at the left-leaning advocacy group Americans for Tax Fairness, opined. President Joe Biden proposed ending this loophole and making billionaires “pay their fair share,” so why does it look like his party won’t touch it?
Do your children have income-generating assets in a custodial account?
If so, be sure you understand the so-called kiddie tax.
This law was passed to discourage wealthier individuals from transferring assets to their children to take advantage of their lower tax rates. The kiddie tax has seen many iterations but current rules tax a minor child’s unearned income—including capital gains distributions, dividends, and interest income—at the parents’ tax rate if it exceeds the annual limit ($2,200 in 2021).
The tax applies to dependent children under the age of 18 at the end of the tax year (or full-time students younger than 24) and works like this:
The first $1,100 of unearned income is covered by the kiddie tax’s standard deduction, so it isn’t taxed.
The next $1,100 is taxed at the child’s marginal tax rate.
Anything above $2,200 is taxed at the parents’ marginal tax rate.
So – If your child also has earned income, say from a summer job or legitimate work in your medical office or practice, the rules become more complicated.
Markets: While yesterday was somewhat of a snoozefest on Wall Street, today should be more interesting. In a quarterly event known as “quadruple witching,” stock options, index options, stock futures, and index futures all expire on the same day, which can produce fireworks.
The phrase quadruple witching brings to mind stories that begin, “It was a dark and stormy night…” or folkloric visions of witches flying chaotically on broomsticks across the brightness of a moon.
In the context of investing, quadruple witching also refers to possible chaos but chaos in the financial markets. Such chaos can erupt due to four different types of contracts on financial assets expiring on the same day. The quadruple witching hour is the last hour of the trading session on that day. The question is whether investors can make abnormally robust profits on quadruple witching days due to market fluctuations.
What Is Quadruple Witching?
Quadruple witching refers to four days during the calendar year when the contracts on four different kinds of financial assets expire. The days are the third Friday of March, June, September and December. The assets on which the contracts expire on that day are stock options, single stock futures, stock index futures and stock index options. Options contracts also expire monthly. Futures contracts expire quarterly.
Because all four types of contracts expire on the same day, the quadruple witching day usually sees a heavier volume of trading. This is why the reference to chaos is made about this witching day. Market volume is increased partly due to offsetting trades that are made automatically. Volume on quadruple witching days has increased roughly two-thirds of the time since 2005.
Recent Quadruple Witching Expiration Day
On June 18, 2021, a quadruple witching day, a near-record volume of single-stock equity options was set to expire at the end of the day in the amount of $818 billion. As a result, a near-record of single stock open interest of about $3 trillion stood on June 18, 2021. Open interest refers to how many contracts are open during any given point during the day. It is an important metric for traders to watch since a large amount of open interest can move the value of the underlying stock.
AMERICAN DEPOSITORY RECEIPT (ADR) = A receipt evidencing shares of a foreign corporation held on deposit or under the control of a U. S. banking institution; it is used to facilitate transactions and expedite transfer of beneficial ownership for a foreign security in the U.S. Everything is done in dollars and the ADR holder doesn’t have voting rights; essentially the same as an American Depository Share (ADS).
A Standard & Poor’s Depositary Receipt, or SPDR, is a type of exchange traded fund that began trading on the American Stock Exchange (AMEX) in 1993 when State Street Global Advisors’ investment management group first issued shares of the SPDR 500 Trust (SPY).
Taking a distribution from a tax qualified retirement plan, such as a 401(k), prior to age 59 1/2 is generally subject to a 10 percent early withdrawal tax penalty.
However, the IRS rule of 55 may allow you to receive a distribution after attaining age 55 (and before age 59 1/2 ) without triggering the early penalty if your plan provides for such distributions.
The distribution would still be subject to an income tax withholding rate of 20 percent, however. (If it turns out that 20 percent is more than you owe based on your total taxable income, you will get a refund after filing your yearly tax return.)
Elizabeth Holmes has no idea how much damage she has done with Theranos. As I often wrote, for digital technologies to gain ground and become part of our everyday lives, we need not only technological solutions but a cultural paradigm shift. Holmes rolled a massive rock in front of it.
Similarly, Facebook’s data privacy practices do not increase people’s confidence in the company’s products. All the scandals that have surrounded the social network could backfire when Facebook wants to step into healthcare – and this is exactly what we wrote about in our latest article, Is There A Place For Facebook In Healthcare? In it, we looked at what Facebook currently does in medicine and evaluated whether those are viable ways to follow in the future.
Take care, Berci Bertalan Meskó, MDPhD The Medical Futurist
DEFINITION: The PPI is a group of indexes that measure the change, over time, in the prices received by domestic producers of goods and services. It measures price changes from the perspective of the seller rather than the consumer, as with the CPI. The CPI would include imported goods, while the PPI is relevant to U.S. producers, and therefore would not include imports.
The PPI measures over 10,000 products and services. It reports the price changes prior to the retail level. This information is useful to the government in formulating fiscal and monetary policies. The data gathered from the PPI is often used in escalating purchase and sales contracts. That is the dollar amount to be paid at some time in the future.
NOTE: Long-term managed medical care contracts of the future will seek escalation clauses for increases in prices.
Offering a blend of active and passive styles of management, a smart beta portfolio is low cost due to the systematic nature of its core philosophy – achieving efficiency by way of tracking an underlying index (e.g., MSCI World Ex US). Combining with optimization techniques traditionally used by active managers, the strategy aims at risk/return potentials that are more attractive than a plain vanilla active or passive product.
Originally theorized by Harry Markowitz in his work on Modern Portfolio Theory (MPT), smart beta is a response to a question that forms the basis of MPT – how to best construct the optimally diversified portfolio. Smart beta answers this by allowing a portfolio to expand on the efficient frontier (post-cost) of active and passive. As a typical investor owns both the active and index fund, most would benefit from adding smart beta exposure to their portfolio in addition to their existing allocations.
Assessment: The smart beta approach is an arguably perfect intersection between traditional value investing and the efficient market hypothesis. But, is it worth the cost?
An IRA in which distributions continue after the primary beneficiary’s death.
For an IRA to be inherited, the primary beneficiary must have already been receiving the required minimum distribution; the distributions either continue or are re-calculated based upon the secondary beneficiary’s life expectancy.
If the secondary beneficiary is the widow(er) of the primary beneficiary, she/he may roll over the inherited IRA into her/his own IRA without penalty.
The saver’s credit is a tax credit that’s intended to promote retirement savings among low- and moderate-income workers. It can reduce an eligible taxpayer’s federal income taxes when they save in a qualified retirement plan. It may be especially useful to medical students, nurses, interns, residents and fellows.
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In 2021, the maximum credit is worth $1,000 for individuals and $2,000 for married couples filing jointly, although it phases out for higher earners. To qualify for the credit, individuals must have an adjusted gross income of $32,500 or less. The income threshold for married couples is $65,000.
Because the credit is non-refundable, eligible taxpayers are able to use it to effectively reduce their tax bill to zero – but it cannot provide them with a tax refund.
One of my favorite patients told me this anecdote as he recalled the story of the old man who spent a day watching his physician son treating HMO patients in the office.
The doctor had been working at his usual feverish pace all morning, and although he was working hard, bitterly complained to his dad that he was not making as much money as he used to.
Finally, the old man interrupted him and said,
“Son, why don’t you just treat the sick patients?”
The doctor-son looked annoyed at his father, and responded,
“Dad, can’t you see, I don’t have time to treat just the sick ones.”
A Dividend Aristocrat is a stock that has exhibited a remarkable level of consistency, measured by the fact that only those S&P 500 companies that have increased their annual dividend for 25 straight years — or more — can be called one. The name was coined by cable TV personality and investor Jim Cramer
These companies have raised their dividends through good times and bad, including recessions, crashes, and pandemics. Being able to continue doing so is a tribute to their stability and strength. Now, the past 18 months have been a particularly difficult economic environment to operate in, and many companies were forced to slash or hold the line on their dividends as a result.
But some companies came through it just fine, like investment manager T. Rowe Price (NASDAQ: TROW), which increased its dividend for the 34th straight year in 2021. It is located in Baltimore Maryland not far from where I grew up. In fact, I used to play stick ball, as a kid, in the parking lot.
Some physician investors may be concerned that they can’t actively trade in a Roth IRA. But there’s no rule from the IRS that says you can’t do so. So you won’t get in legal trouble if you do.
But there may be some extra fees if you trade certain kinds of investments. For example, while brokers won’t charge you if you trade in and out of stocks and most ETFs on a short-term basis, many mutual fund companies will charge you an early redemption fee if you sell the fund. This fee is usually assessed only if you’ve owned the fund for fewer than 30 days.
2. Any gains are tax-free – forever
The ability to avoid taxes on your investments is an incredible benefit. You’ll be able to escape – perfectly legally – taxes on dividends and capital gains. Not surprisingly, this superpower makes the Roth IRA very popular, but to enjoy its benefits, you must abide by a few rules.
The Roth IRA limits you to a $6,000 maximum annual contribution (for 2021), and you won’t be able to withdraw earnings from the account until retirement age (59 1/2) or later and after owning the account for at least five years. However, you can withdraw your contributions to the account without being taxed at any time, but you won’t be able to replace those contributions later.
Many traders use margin in their accounts. With a margin loan, the broker extends you capital to invest beyond what you actually own. It’s a useful tool, especially if you’re trading frequently. Unfortunately, margin loans are not available in IRA accounts.
For frequent traders the ability to trade on margin is not just about magnifying your returns. It’s also about having the ability to sell a position and immediately buy another. In a cash account (like a Roth IRA), you have to wait for a transaction to settle, and that takes a couple days. In the meantime you’re unable to trade with that money even though it’s credited to your account.
PLUS A FOURTH RULE
4. You don’t get to deduct losses
If you’re trading in a taxable brokerage account, you’ll get a tax write-off if you make a losing investment. Some investors even make sure they’re getting the largest write-off they can using a process called tax-loss harvesting. They scoop up that benefit and then even repurchase the stock or fund later (after 30 days) if they think it’s poised to rise in the future.
But if you’re trading in a Roth IRA, you won’t get the ability to write off losses. Changes to the tax code in 2017 eliminated the ability to claim any benefit from losses in an IRA account.
MUTUAL COMPANY: A company that has no capital stock or stockholders. Rather, it is owned by its policy-owners and managed by a board of directors chosen by the policy-owners.
Any earnings, in addition to those necessary for the operation of the company and contingency reserves, are returned to the policy-owners in the form of policy dividends.
STOCK COMPANY: A joint-stock company is a business entity in which shares of the company’s stock can be bought and sold by shareholders.
Each shareholder owns company stock in proportion, evidenced by their shares (certificates of ownership). Shareholders are able to transfer their shares to others without any effects to the continued existence of the company.
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