By Mike Piper8 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited January 10, 2014.
People often ask me to point them to a decent online retirement planning calculator. I never do.
You see, I don’t trust such calculators.
It’s not that their math is wrong. (At least, not usually.) The problem is that their calculations are often based on shoddy assumptions and unknowable variables.
You Know What They Say about Assuming…
For example, what rate of return does the calculator assume for your portfolio? Is it reasonable? Or, perhaps, was the calculator programmed to assume that future returns will equal past returns (thereby ignoring the possibility that the U.S. economy won’t have the same explosive growth over the next century that it did over the last)?
And what assumptions does the calculator make about future tax rates? From what I’ve seen, most calculators assume that either:
All income will be taxed at a flat rate (usually 25% or 28%), or
Tax brackets will continue to look the same as the 2013 tax brackets all the way into the future.
While I certainly don’t know what tax rates will look like three decades from now, I doubt that either of one of those assumptions will turn out to be correct.
And does the calculator account for sequence of returns risk? A portfolio averaging a 5% annual return is very different from earning a 5% return every year. If the calculator doesn’t account for that fact, it’s going to significantly underestimate the amount of money you’ll need to retire safely.
What’s Better than an Online Calculator?
If you’ve taken the time to educate yourself about investing, then you probably don’t need an online calculator. A simple excel spreadsheet will function at least as well. (And you get to choose your own assumptions!)
Alternatively, if you haven’t taken the time to learn about investing, there’s no way for you to judge whether the assumptions that went into the calculator’s projections are reasonable.
In other words, there are two routes you can take:
If you want to be a do-it-yourself investor, super. But rather than rely on online calculators, you’ll need a deeper level of understanding if you want to be successful.
If you don’t want to go it alone, that’s fine too. But in that case, an online calculator isn’t what you need. What you need is a qualified financial advisor.
In my opinion, such calculators are only useful for young investors who are so far away from retirement that none of the relevant variables are known yet. In other words, a completely blind guess from a calculator is almost as good as one from an advisor.
About the Author: Mike Piper writes at Oblivious Investor, where he provides plain-English explanations of topics like Roth IRA rules and 401k rollovers.
The Dow Jones Industrial average is heading for an imminent change with the expected bankruptcy filing of auto giant General Motors. With the falling out of the once legendary blue chip stock, many of my clients have inquired to how companies get listed on the Dow Jones Industrial Average and when are they replaced. I thought I would give a brief background on the origin of the Dow Jones, with the current holdings as well as what it takes to be listed.
What is the Dow Jones?
It never fails that everyday I get the question, “How did the market do?” or “How’s the market doing?”. The market that everybody is always referring to is the Dow Jones Industrial Average. The Dow (for short) was founded May 26, 1896 initially only having 12 companies from important American industries (hence: “Industrial” average). The Dow currently reflects the top 30 U.S. Companies across it’s various industries. To compute the Dow that you hear about each day, a lengthy geometric formula is used that takes the price-weighted stock price of each company and divides by the “DJIA divisor”. The divisor is a number that is constantly adjust to reflect stock splits, mergers, and dividend payments.
The most common criticism of the Dow is that it only represents 30 companies yet it’s recognized as “The” market indicator. Even though the S&P 500 represents the top 500 US companies and is a better reflection of our economy, when people ask me about the “market”, I assure you it’s not the s&P 500.
Current Holdings Dow Jones
Here’s a look at the current holdings in the Dow Jones:
Company
Symbol
Industry
Date Added
3M
MMM
Diversified industrials
8/9/1976
Alcoa
AA
Aluminum
6/1/1959
American Express
AXP
Consumer finance
8/30/1982
AT&T
T
Telecommunication
11/1/1999
Bank of America
BAC
Institutional and retail banking
2/19/2008
Boeing
BA
Aerospace & defense
3/12/1987
Caterpillar
CAT
Construction and mining equipment
5/6/1991
Chevron Corporation
CVX
Oil and gas
2/19/2008
Citigroup
C
Banking
3/17/1997
Coca-Cola
KO
Beverages
3/12/1987
DuPont
DD
Commodity chemicals
11/20/1935
ExxonMobil
XOM
Integrated oil & gas
10/1/1928
General Electric
GE
Conglomerate
11/7/1907
General Motors
GM
Automobiles
8/31/1925
Hewlett-Packard
HPQ
Diversified computer systems
3/17/1997
The Home Depot
HD
Home improvement retailers
11/1/1999
Intel
INTC
Semiconductors
11/1/1999
IBM
IBM
Computer services
6/29/1979
Johnson & Johnson
JNJ
Pharmaceuticals
3/17/1997
JPMorgan Chase
JPM
Banking
5/6/1991
Kraft Foods
KFT
Food processing
9/22/2008
McDonald’s
MCD
Restaurants & bars
10/30/1985
Merck
MRK
Pharmaceuticals
6/29/1979
Microsoft
MSFT
Software
11/1/1999
Pfizer
PFE
Pharmaceuticals
4/8/2004
Procter & Gamble
PG
Non-durable household products
5/26/1932
United Technologies Corporation
UTX
Aerospace, heating/cooling, elevators
3/14/1939
Verizon Communications
VZ
Telecommunication
4/8/2004
Wal-Mart
WMT
Broadline retailers
3/17/1997
When Does a Stock Get Dropped from the Dow?
A stock is dropped from the Dow Jones when it seems warranted. As mentioned before, General Motors is presumed to be soon removed from the Dow especially if it files for bankruptcy. A likely candidate to join GM is (former) banking giant Citigroup. . Here are some of the more notable changes in recent history:
September 22, 2008: Kraft Foods replaced AIG (American International Group)
February 19, 2008: (My wife’s b’day 🙂 Chevron and Bank of America replaced Altria Group and Honeywell
April 8, 2004: Pfizer, Verizon, and AIG replaced International Paper, AT&T, and Eastman Kodak
Who Will Replace GM?
GM out of the Dow?
There aren’t any preset rules on how a company gets replaced on the Dow. Looking at past replacements, typically the Dow does not replace an exiting company with another in it’s same industry. Currently, there are several speculations on which company is going to replace them. A few possibilities include: Cisco, Visa, Amazon, Wells Fargo, and mother Google. Time will tell.
Update: Cisco and Traveler’s Co. will be replacing GM and Citi at the end of trading June 8, 2009.
After a relentless series of 10 interest rate hikes within a span of 15 months, the Federal Reserve’s Open Market Committee is poised to pause or potentially halt the upward trajectory as inflation shows signs of subsiding. As inflation gradually inches closer to the Fed’s target average of 2%, the inevitable outcome looms: a subsequent decline in interest rates
That means that the relatively good times bank savers have been experiencing may already have topped out. A look at average rates for certificates of deposit gives a glimpse of how bankers are seeing the future. According to recent national surveys from Bankrate.com, the average rate on a 1-year CD was yielding 1.68% while 5-year certificates offered yields 1.23%. With short-term rates starting to equal or even trend higher than long-term rates, it’s a signal that bankers are betting on long-term rates declining.
Right now, however, savers can keep their good times rolling by locking in rates on long-term CDs. According to the SmartAsset CD comparison tool, savers can snag a rate of 4.4% on two-year CDs, producing an annual percentage yield (APY) of 4.5%. That’s only slightly below the 12-month rate of 4.88% (5.1% APY).
For help making the right CD choices for yourself, consider working with a financial advisor.
How to Get the Most Out of CD Investments
At TIAA bank, savers can find a 12-month rate producing 4.75% APY but sacrifice just a bit of yield to lock in a 5-year certificate at 3.95% APY. The online Bread Savings (formerly Comenity Direct) offers a similarly yielding 4.25% APY 5-year CD, with the yield trimmed just a bit from the 5.2% APY produced by the banks’ 12-month certificate.
It can seem tempting to grab a higher-rate, shorter-term certificate right now, but the question is where savers will be able to take their money when it comes time to roll over their cash. When a 12-month CD paying 5% now expires a year from today, the only option for reinvesting could be CDs with yields lower than today’s long-term rates. In the year leading up to the pandemic, the average 5-year CD rate was a meager 1.1%.
When it comes to comparing CDs, rates can be listed as the stated interest and as the annual percentage rate (APY), which calculates the compounded yield of the rate after 12 months. In addition to the stated rate, the APY calculation also is based on how frequently interest is compounded. If a CD compounds annually, the stated rate will be the same as its APY. If the APY is higher than the stated rate, compounding takes place more than once a year.
Since 2020, long-term CD rates have gone from averaging 1.14% for 5-year certificates to as little as 0.26% – close to a record low – at the end of 2021 before climbing back up to 1.17% in February. The highest rates recorded in the past several decades occurred during the 1980s, when inflation pushed rates well into double-digits, with six-month CD rates hitting a state rate of 17.98% in August 1981.
The Bottom Line
Certificates of deposit, along with other insured bank products such as savings accounts or bank money market accounts, are good places to safely deposit cash. In most cases, however, those types of accounts won’t provide the growth needed to build a retirement fund that isn’t drained by inflation or produce the earnings required to support a potential 30-year retirement.
Investment Tips
A financial advisor can help you put together a strong investment strategy. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Fidelity recommends that you have 10 times your annual income saved for retirement by age 67. To find out if you’re on track, try SmartAsset’s retirement calculator. This free tool will estimate how much you’ll have when the time comes to retire.
Depending on your age, your insurance needs change. As an applicant who is 51 years of age, your needs vary tremendously from that of someone who is younger. There are multiple factors that need to be considered before deciding on which life insurance to settle on.
If this is your second time buying a life insurance policy, you may notice that its’ very different from the last time that you purchased a plan, but it’s no less important at age 51. Life insurance is the single most essential investment you’ll buy for your family, but there are a lot of people in their 50s that avoid buying life insurance coverage.
Determine Your Needs
As a 51 year old you are most likely starting to hunker down on your retirement, your children have most likely left the house, and your home is hopefully close to being paid off. If might even be the case that you have grandchildren at this stage of life. With all of these potential factors in your life it is not surprising that life insurance may not be a top priority. The fact of the matter is that it is still extremely important.
Before you buy an insurance plan, you need to calculate how much life insurance you need, and there are several things you need to account for. The first is your debt. As we mentioned, your house should be close to being paid off, but that isn’t going to be your only debt, or maybe you still have a lot left on your mortgage. All of your debts and unpaid expenses would be passed on to your family if you passed on. You’ll also need to account for any funeral costs or possible medical expenses you could rack up.
You’ll also need to think about your annual salary. Your kids have already moved out, or are close to it, but what about your spouse? Does he/she depend on your income? Would anyone else experience financial suffering? If so, you’ll need to account for replacing your salary.
What Cost Can You Expect at Age 51?
Assuming you are a non-smoker and can achieve a Preferred Plus rate, you are in a good spot to receive top notch insurance at a reasonable rate. The going rate for a 10 year term is $15.26 whereas the going rate for a 20 year term is $25.20. Both of these rates are for a man who is seeking $100,000 of coverage and assumedly good health. Here are some quotes for $250,000:
Sex
10 Year
20 Year
30 Year
Male
Protective – $26.73/month
SBLI – $46.93/month
Banner – $79.84/month
Female
Protective – $22.35/month
SBLI – $35.24/month
Banner – $59.94/month
You may still be of the mindset that you will not need life insurance for the foreseeable future, but there is no telling what health problems you can be faced with in this stage of life. Your body unfortunately starts to deteriorate whether you like it or not, and being proactive and prepared is the best defense against this.
There are several things that you can do to help you get the lowest rates possible. The first is to quit smoking. The sample quotes above are from a non-smoking applicant, if you’re a smoker, you can expect those rates to double, or even triple depending on the company.
Additionally, you’ll need to get in the best shape possible. Starting a good diet and getting regular exercise is an excellent way to lower your blood pressures, lose some weight, and lower your cholesterol. They aren’t quick or easy changes, but committing yourself to a healthier life can save you hundreds.
We give every applicant the same piece of advice, compare plans. With 6,000 insurance carriers, there are plenty of options. Working with an independent agency (like ourselves), is like working with over 50 different highly rated companies. You could spend days calling insurance companies yourself, or you can let us do the work for you. Independent agents not only save you time, but save you money by connecting you with the perfect insurance company to fit your needs.
What Type of Insurance Does a 51 Year Old Need?
There are dozens of options, but as a 51-year-old applicant, not all of them are suitable. The two main kinds are term and whole, but in whole life insurance is going to be drastically more expensive at this age. We suggest people 50 and above buy a term plan.
There are several different types of life insurance that you’ll have to compare. You’ll need to weigh the pros and cons before you make a choice. It’s vital that you pick the perfect policy type to fit your insurance needs.
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What is Term Life Insurance?
At age 51, perhaps the best type of insurance to consider is term life insurance. Not only is it affordable, but it oftentimes covers you for a wide variety of situations and provides you with the peace of mind that is so appealing with insurance.
Term insurance is the most common. It’s simple and it’s cheap, what’s not to love. These plans are temporary coverage, and you can buy them to match your life insurance needs.
Getting the Best Rates
The key to getting the best rates for anyone looking to get over 50 life insurance is to shop around. Instead of you having to go from company to company or website to website, an independent agent will shop all of the available plans and companies in your area.
The easy step-by-step instructions to learn how to create a budget – that works!
Far too often, I hear people asking if really need a budget. Whether you are in debt or not, it is imperative that you have a budget. Without one, your money tells you where it wants to go rather than you controlling how you spend it.
If you are just learning about budgeting, you will want to check out our page — How to Budget. There, you will learn everything you want to know about budgets and budgeting.
Budget.
I know that this is the other “B” word out there. However, without a budget, you have absolutely no control over your finances. This is one of the key tools required to work yourself out of debt and achieve financial freedom.
Before my husband could dig ourselves out from debt, we had what we called a budget. The truth is that it was not a budget at all. It was a piece of paper with the list of the people we had to pay every month. It was not a true budget.
When we began our debt free journey, I had a difficult time creating a budge. It made me sick to my stomach to see it all written down on paper. The reality was that when our bills were all paid, we had nothing left over. Nothing for food. No money for anything at all.
But, as we started to pay off our debt, we began to see a change in our budget. We were able to remove debtors from our budget and eventually added in categories like dinner out, vacation, movies, and even SAVINGS.
When you have a budget, you are taking charge of telling your money where it needs to go rather than it telling you where it wants to go.
[clickToTweet tweet=”When you have a budget, you tell your money where it should go instead of the other way around.” quote=”When you have a budget, you tell your money where it should go instead of the other way around.”]
WHY DO I NEED A BUDGET?
This is a question that many people have asked me over the years. Allow me to turn that around.
Why is it that you think you don’t need one? Do you think you don’t need to remember which bills need to be paid? Perhaps you think that you don’t need to remember to plan for annual or unexpected expenses? Even if you feel you don’t need a budget, the truth is you do. Everyone does.
A budget helps you know where your goes. It can help you ensure you are saving enough and paying down your debts. Your budget can help you control your spending.
Simply put – a budget helps you gain financial control. We all know we can’t control a lot of things in our lives, so it is nice to know there is something we can!
Even if you don’t have debt and are financial stable, you still need a budget so you can just monitor your spending and make your money work for you rather than against you.
WHERE DO I START?
If you have never had a budget before, you may not even know where to begin. It can really be scary and overwhelming to get started. I’ll break it down for you into simple steps so that you can get yours set up and working for you.
1. BUDGET FORM
First, you need a budget form. I have created a budget template for you to use — free of charge! You can either download the form, or use the spreadsheet version.
If you want something high tech, I’d recommend You Need A Budget (YNAB). You can try it for free for 34 days and then it is $60. It is worth every penny (and a one-time fee! However, I don’t pay for most apps or software I personally use as there is so much out there that is FREE!!!
2. INCOME
Next, look at your paycheck(s) – what we call your Income Source(s). Since your budget is based upon your monthly income, you will have to possibly complete some calculations to reach that figure. Here are some calculations to help you:
Paid Bi-Weekly (i.e. every other Friday): Take the 4 income totals and subtotal them. Divide them by 2 and you will read your average monthly income.
Paid Monthly: If the amount listed in each pay period is the same, you can just use the monthly income you see. Otherwise, add 3 or 4 months of income and divide by that same number of months calculated.
Paid Weekly: Take the total of the 4 income periods and that will give you an average monthly income.
Hourly or Commission Based (i.e. fluctuating income): Total your last 4 months of income and divide by 4 to reach an average. However, since your income fluctuates more frequently, you will need to adjust your income and revisit your budget more frequently.
3. EXPENSES
The next step in your budget is to determine your expenses. To ensure an accurate budget, you will handle your fixed expenses differently than discretionary.
Your fixed expenses include items such as your mortgage, car payment, insurance, etc. The things you pay every month which do not change (or only vary in payment slightly).
Your discretionary expenses include those which are not always the same payment (like your mortgage or cell phone bill). To get an accurate number for your budget, I recommend you create a spending plan. This will look at your spending over a period so that your budget reflects the amount you spend.
For example, if you spend $500 on food in month one, $600 in month 2 and $575 in month three, the three-month average would be $558.33. That is the amount you will add to your budget.
Look at your budget form to ensure you did not overlook any items you need to include. While we have included most that should be considered, check out this list of the categories you need to include in your budget.
4. FILL OUT YOUR BUDGET
This is the “fun” part. Transfer the amounts you have listed above into each spot on the budget. Your monthly income should go at the top and then the amounts for each expense in the appropriate location. Those listed on the form are to be used as a guide (reminder if you will) to ensure you properly account for all of your expense. You can add rows / edit the descriptions as needed.
Subtotal both the income and expenses. If you see that you are spending more than you take home, then you are short on income and will need to adjust your expenses. If you are not spending all you make, then you might consider increasing your savings or retirement account contributions.
If you would rather, you can watch a short tutorial video which explains how to complete the form. (Click here for larger screen version, if necessary).
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WIPE YOUR TEARS AND LET’S MAKE SOME CHANGES
Yes, tears are common at this point. In fact, when I saw our budget for the very first time, I cried. I was sick to my stomach. I could not believe that we were in such horrible shape financially. However, the tears were quickly wiped away and my husband and I tackled our budget and started to rework the numbers and I started to feel better. I felt like I could do it. It would be tough, but nothing in life worth having is ever easy!
What we had to do was just really look at where we were spending our money. The first thing that had to go was dining out. Did we need to dine out every single week? No. We wanted to get out of debt, so we wanted to free up extra income to apply towards our debt. That was far more important than dinner out. Eliminating that expense immediately freed up more money which we could apply towards other mandatory expenses.
Just take a long, hard look at where you are spending your money. Even if you are not trying to work yourself out of debt like we were, you might see that you are spending more than you are making. You will need to eliminate some of your expenses. The simplest way to do this is to make two lists: Mandatory and Discretionary. Go through each item and indicate if it is a mandatory expense or discretionary.
Look at your mandatory expenses – like cable. If you get a high-end package, you might want to scale back to basic cable to get your budget to work (or even do this and free up income to pay down your debts). You might be like us and find you spend a lot of money dining out and can save a lot of money that way as well.
Then, look at your discretionary spending. Are you paying $50 a month for a yoga class that you go to only now and again? What about your subscription to that magazine that sets you back $75 a year? These are luxuries. They will have to go.
If you are spending more than you make or are trying to pay down your debt, you can’t afford anything but what it takes to keep a roof over your head, the lights on and food in your family’s stomachs (so to speak). Trim that budget down to bare bones and you might be surprised to find that extra $100 – $300 or so hiding that you can now start to use towards your debt elimination, or to help put food on the table.
If, once you have adjusted your budget it still doesn’t look right, make more adjustments. If you have already scaled back on everything and it isn’t balancing out, make some calls to your debtors. Ask for reduced interest rates or how to reduce your payments. You can also suggest to them a different monthly payment other than the one they are asking you for. You never know what they will accept if you don’t make that phone call.
You are going to have to make tough choices/changes to your budget to make it work. As I said, one that we did was dining out. We ate out only about 10 – 20 times for a period of 2 years (unless someone else took us out to eat). Was it hard – Darn Skippy it was!! Was it worth it? More than you can imagine.
I HAVE MY BUDGET – NOW WHAT?
Once your budget is created, does that mean you are done? Sorry, but the answer is no. You will need to revisit your budget at least once per month to make any necessary adjustments. For most there will not be any to be made, but for some, things will happen to cause your line items to need to be adjusted. That might mean you will remove something (once you pay down a debt) or may need to add one (saving for that new vehicle).
Budgets are not easy nor are they fun, but once you have one set up and continue to refer to it, it will work. You will find it helps as you are now telling your money where you want it to go rather than it telling you where it is going to end up each month. Financial control – such an amazing feeling!
Check out our FINANCE section on the site for more budgeting, debt reduction and money saving tips and helpful ideas.
What’s the Difference Between Short Calls and Long Calls?
Every time a call option contract transaction takes place there is a seller and a buyer. The seller is said to have gone short the calls and the buyer is long the calls. “Short calls” and “long calls” are simply shorthand for these two positions and strategies.
Short calls are a bearish options strategy used to profit from an expected sideways to downward price action on a security. On the other hand, a long call is a bullish options strategy that aims to capitalize on upward price movements on an asset such as a stock or exchange-traded fund (ETF).
Short calls are the opposite strategy to long calls and their potential payoffs reflect that. Long calls have the potential to be unlimited in gain, and short calls the maximum gain is the premium.
What Are Short Calls?
“Short calls” is shorthand for pursuing the strategy of selling a call option.
Short call sellers receive a premium when the call is sold. The seller hopes to see a decrease in the underlying asset’s price to achieve the maximum profit.
It is also possible for the seller to profit if the underlying asset price stays the same. Options prices are based on intrinsic value (the difference between the strike price and the asset price) and time value.
If the asset price remains stable, intrinsic value will also be stable. However, as the option nears expiration the time value will drop to zero due to theta decay.
Furthermore, there are two types of short calls, naked and covered calls. Short calls are “naked” when the seller does not own the underlying asset. Short calls are “covered” when the seller owns the underlying asset at the time of sale.
Short calls have a fixed maximum profit equal to the premium collected and losses are undefined. Theoretically, a stock could rise to infinity, so there is no cap on how high the value of a call option could be.
Therefore short calls can be highly risky. For this reason, traders should have a risk management plan in place when they engage in naked call selling.
Short Call Example
It’s helpful to see an example of a short call to understand the upside reward potential and downside risks involved with such a strategy.
Suppose your outlook on shares of XYZ stock is neutral to bearish. You think that the stock, currently trading at $50, will trade between $45 and $50 in the next three months.
A plausible trade to execute would be to sell the $50 strike calls expiring in three months. We’ll assume those options trade at $5. The breakeven price on a short call is the strike price plus the premium collected.
In this example, the breakeven price is thus $50 plus $5 which is $55. You profit so long as the stock is below $55 by the time the options expire but will experience losses if the stock is above $55 by expiry.
Two months pass, and the stock is at $48. The calls have dropped in value thanks to a minor share price decline and since there is less time until expiration. The drop in time value relates to decaying theta, one of the option Greeks, as they’re called. Your short calls are now valued at $2 in the market.
Fast-forward three weeks, and there are just a few days until expiration. The stock has rallied to $49, but the calls have actually fallen in value. They are now worth just $1. Time decay has eaten away at the value of the calls — more than offsetting the rise in the underlying shares. Time decay becomes quicker as expiration approaches.
You choose to buy-to-close your options in the market rather than risk a late surge in the stock price. Most options are closed out rather than left to expire (or be exercised) as closing options positions before expiration can save on transaction costs and added margin requirements. You cover your short calls at $1 and enjoy a net profit of $4 on the trade ($5 collected at the trade’s initiation and a $1 buy back to close the position).
Pros and Cons of Short Calls
Pros of Short Calls
Cons of Short Calls
Benefits from time decay
Unlimited risk if the underlying asset rises sharply
Can be used in combination with a long stock position to generate extra income (covered call)
You may be required to deliver shares if the options holder exercises the call option
The underlying stock can be sideways to even slightly higher and you can still profit
Reward is capped at the premium you received at the onset of the trade
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
What Are Long Calls?
Long calls are the opposite strategy to a short call. With a long call, the trader is bullish on the underlying asset. Once again, a key piece of the options trade is the timing aspect.
A long call benefits when the security rises in value, but it must do so before the options expire.
Long calls have unlimited upside potential and limited downside risk. A long vs short call differs in that respect since a short call has limited profit potential and unlimited risk.
A long call is a basic options strategy that is often a speculative bullish bet on an underlying asset. It’s a good options strategy for those just starting out since there is a limited loss potential and the strategy itself is not complicated.
Long Call Example
Buying a long call option is straightforward. Long calls vs short calls involve different order types. With long calls, you input a buy-to-open order and then choose the calls you wish to purchase.
You must enter the underlying asset (often a stock or ETF, but it could be an option on a futures contract such as on a commodity or currency), along with the strike price, options expiration date, and whether the order is a market or limit order.
Suppose you go long calls on XYZ shares. The stock trades at $50 and you want to profit should the stock rise dramatically over the next month. You could buy the $60 strike calls expiring one month from now. The option premium — the cost to buy the option — might be $2. Because the call is out-of-the-money, that $2 is composed entirely of extrinsic value (also known as time value).
Since you are going long the calls, you want the underlying stock price to rise above the strike price by expiration. It’s important to know your breakeven price with a long call — that is the strike price plus the premium paid. In our example, that is $60 plus $2 which is $62. If the stock is above $62 at expiration, you profit.
After three weeks, the stock has risen to $70 per share. Your calls are now worth $13.
That $13 of premium is made up of $10 of intrinsic value (the stock price minus the strike) and $3 of time value since there is still a chance the stock could keep increasing before expiry.
A few days before expiration, the shares have steadied at $69. Your $60 strike calls are worth $10. You decide to take your money and run.
You enter a sell-to-close order to exit the position. Your proceeds from the sale are $10, making for a tidy $8 profit considering your $2 premium outlay.
Pros and Cons of Long Calls
Pros of Long Calls
Cons of Long Calls
Unlimited upside potential
The premium paid can be substantial
Risk is limited to the premium paid
You can be correct with the directional bet and still lose money if your timing is wrong
Is a leveraged play on an underlying asset
There’s a chance the calls will expire worthless
Comparing Short Calls vs Long Calls
There are important similarities and differences between a short call vs long call to consider before you embark on a trading strategy.
Similarities
Traders use options for three primary reasons:
• Speculation — Speculators often do not take positions in the underlying stock. Investors can buy a call and hope the underlying asset rises or they can sell a call and hope the asset price drops. Either way, the investor is taking a risk and could lose their investment, or more in the case of naked short calls.
• Hedging — Short sellers of stock may sometimes buy call options to hedge their stock positions against unexpected price movements.
• Generate Income — Covered short calls help to generate extra income in a portfolio. The seller sells a call that is out-of-the-money, collects the premium, and hopes the stock doesn’t rise to that strike price. However, the investor can also choose a strike that they would be happy to sell at such that, if the stock rises and the option is exercised, they are happy to sell their shares.
Differences
Long calls are a bullish strategy while short calls are a neutral to bearish play.
Potential profits and possible losses are the opposite in long calls vs. short calls. A long call has unlimited upside potential and losses are limited to the premium paid. A short call has an unlimited loss potential with a max profit that is simply the premium collected at the onset of the trade.
Time decay works to the benefit of an options seller, such as when you enter a short call trade. Time decay is the enemy of those who are long options.
When implied volatility rises, the holder of a call benefits (all else equal) since the option will have more value. When implied volatility drops, options generally become less valuable, which is to the option writer’s benefit.
It’s also important to understand the moneyness of a call option. A call option is considered in-the-money when the underlying asset’s price is above the strike price. When the underlying asset’s price is below the strike, then the call option is considered out-of-the-money.
A call writer prefers when the call is more out-of-the-money while a call holder wants the calls to turn more in-the-money.
Short Calls
Long Calls
Neutral-to-bearish view
Bullish view
A more advanced options play
A trade that is good for options beginners
Limited reward, unlimited risk
Unlimited reward, limited risk
The Takeaway
Long calls and short calls are two options trading strategies you can use to place a directional and timing wager on an underlying asset — often a stock or ETF. Buying calls is a bullish play while selling calls is a neutral to bearish strategy.
If you’re ready to try your hand at options trading online, You can set up an Active Invest account and trade options from the SoFi mobile app or through the web platform.
And if you have any questions, SoFi offers educational resources about options to learn more. SoFi doesn’t charge commissions, but some fees apply, and members have access to complimentary financial advice from a professional.
With SoFi, user-friendly options trading is finally here.
FAQ
Are long calls better than short calls?
Long calls are not necessarily better than short calls. Using one versus the other depends on your outlook on how a security will move between now and expiration.
Long calls appreciate when the underlying asset rises in value. Short calls, on the other hand, are useful if you have a neutral to bearish view on a security. Short calls drop in value as time value erodes and when the underlying asset’s price falls.
Like long calls, it is important that your directional bet and timeframe line up with the calls you look to sell short.
How do short calls and covered calls differ?
Short calls are often naked positions. That means they traded outright without having an existing long stock position. Naked short calls are risky since there is unlimited loss potential should the stock rise.
Covered calls work by owning shares of a stock, then selling calls against that long stock position. Covered calls are a common options trading strategy whereby a trader looks to enhance a portfolio’s income by collecting a premium while the underlying shares trade sideways or decline in value.
The downside of covered calls is that your shares can get called away from you if the stock price rises above the strike price. Covered calls have the benefit of protecting the trader from unlimited losses since the long stock position offsets the short calls’ unlimited loss potential.
Photo credit: iStock/Prostock-Studio
SoFi Invest® The information provided is not meant to provide investment or financial advice. Also, past performance is no guarantee of future results. Investment decisions should be based on an individual’s specific financial needs, goals, and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below. 1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC registered investment advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or prequalification for any loan product offered by SoFi Bank, N.A. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. SOIN0221023
Back to square one It was time to rebuild. “I did a little sabbatical for about a year in New Mexico,” he said. “I had to live with my parents, and they helped me with my kids. I had four kids. They crashed with me. We all crashed together!” he said, now able to laugh … [Read more…]
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Building or purchasing a home can be a daunting task as it involves several considerations, many of which must be planned well in advance. For prospective homeowners in India, the most significant concern is often the substantial financial investment required to construct or buy a property.
While many Indians invest their savings in purchasing or renovating a home, they may still fall short of the necessary funds. In such cases, Home Loans can be a suitable solution. Moreover, securing a housing loan in India has become much simpler in recent years.
Previously, applicants had to visit a bank office, undergo KYC and credit checks, and wait for approval. However, now one can easily apply for a home loan with just a few clicks online, submit a few essential documents, and wait for the bank to complete the remaining necessary checks.
In this article, we will guide you through everything you need to know about home loans up to Rs 75 lakh.
How To Apply For Home Loans Up To Rs. 75 Lakhs
Applying for a home loan for Rs 75 lakh can be done by visiting the relevant lender’s website and following the steps outlined below:
Select “Home Loan” from the list of loans.
Select the “Apply Online” option. You will be directed to a website where you must enter your name, mailing location, email address, contact phone number, and PAN.
On your cell number, you’ll get an OTP.
Enter the OTP to confirm.
Select the loan’s value and term. You’ll be taken to another website where you must enter your job, salary, and property information.
To finish the web registration procedure, the ‘Submit’ option must be clicked.
You will be contacted by an employee of the relevant bank or financial organisation for additional help. The agent will also pick up the papers from your contact location.
Eligibility Requirements For Home Loans Up To Rs. 75 Lakhs
The usual eligibility requirements for home loans up to Rs 75 Lakh are as follows:
If applying as a salaried person, the candidate should fall between the ages of 21 and 60 or 21 and 65 if applying as a self-employed person.
The required minimal annual revenue will range from Rs 25000 to Rs 30000.
The ideal debt-to-income ratio is 40% to 50%.
The minimal credit score ranges from 650 to 750.
The credit is open to both Indian citizens and non-residents.
Important Documents For Home Loans Up To Rs 75 Lakh
You must send the following paperwork with your home loan application to be eligible for a house loan of up to Rs 75 lakh:
KYC records
Card Aadhar
Passport
PAN
Driving Permit
Income records for those who are employed
Pay stubs from the previous three months
Current Form 16
Current ITR
Statement of recent six-month bank accounts
Income tax returns for independent contractors
Financial records that have been audited for the past two years, such as the profit and loss account and balance sheet
ITR for the previous two years
Statement of bank accounts for the previous 12 months.
Property records (copies to be submitted)
Deed of Sale
Contract of Sale
Holding Certificate
Latest receipt for property taxes paid
Proof of encumbrance for the previous 13 years
Factors That Affect The Rs 75 Lakh Home Loan EMI
The factors that impact the Rs 75 lakh home loan EMI are:
Income: People working for federal, state, or local governments or the public sector are assured of a salary. These borrowers will thus pay relatively reduced interest rates, resulting in cheaper overall credit costs.
Interest rate: If you selected a fixed interest rate, your interest payment would be between 1% and 2% more than if you had selected a variable interest rate.
LTV Ratio: The LTV Ratio affects the interest rate that is applied. Banks typically offer home loans for 75% to 90% of the property’s market worth. The greater the margin, the smaller will be the interest rate, as the potential for loss is smaller for the lender. The EMI will decrease if the interest rate is cheaper too.
Duration: An increased EMI will result from an extended term and vice versa.
Techniques To Reduce The EMI For Rs. 75 Lakh Home Loan
The EMI does not have to remain at the same amount as when the debt was first obtained. Thus, you can decrease the 75 lakh home loan EMI and subsequent debt costs in several methods. This includes:
Implementation Of An Improved Debt Rate System
According to RBI rules, the interest rate system is constantly transforming. It might be the MCLR, BPLR, Base Rate, or EBR.
As you can see, BPLR charges an interest rate significantly greater than the other interest cost structures, with EBR charging the lowest interest rate.
Make The Step-Down EMI Choice.
You can choose the step-down EMI choice if you are a young person who has just begun your job. In this case, the EMI would be originally made greater and progressively decreased over time.
As a result, you’ll be able to pay less interest during the first few years when the capital is falling off quickly. The demand will decrease in line with that.
Change The Interest Rate On Your Loan From Set To A Variable.
A set interest rate typically costs more than a variable interest rate. The set EMI is a benefit of selecting a fixed interest rate.
Furthermore, it will aid in managing the money needed for the long-term EMI payment. You won’t frequently be caught off guard when the EMI unexpectedly rises in response to an increase in the interest rate.
Transfer The Outstanding Amount Of Your Mortgage To A New Provider With A Lower Interest Rate.
You can move the outstanding Home Loan amount to a provider who provides a loan at a reasonable interest rate. This is possible if you did not compare interest rates when initially filing for it and later discovered that you are paying a greater interest rate. This will ease the weight of your EMIs.
Conclusion
In conclusion, many people consider owning a house a significant life objective. There are many Indians who are willing to spend anything necessary to realise this goal. Although purchasing a property is a very costly expenditure, it is possible to opt for a housing loan in India up to Rs 75 Lakh.
Payment apps have revolutionized the way we manage our finances, making it easier than ever to send and receive money from the comfort of our smartphones. In the center of this digital revolution are two popular payment services: Zelle and Venmo.
Both offer convenient ways to transfer money, but which one offers the best experience for you? This depends on your specific needs and the features each app provides. In this guide, we’re going to dive into Zelle vs. Venmo, examining their services, fees, transfer limits, security, and more to help you make an informed decision.
Overview of Zelle
Zelle is a payment service backed by many of the biggest financial institutions in the U.S. Launched by Early Warning Services, a consortium of banks, it’s integrated into the regular online banking apps of participating banks, eliminating the need for a separate Zelle account. The service is designed to facilitate instant transfers between linked bank accounts, offering a seamless way to send money.
Overview of Venmo
Venmo, owned by PayPal, is a free-to-use payment app that allows peer-to-peer payments, making it easy to split bills, pay friends, or even pay for goods and services from authorized merchants.
With Venmo, users have a Venmo balance which they can use for transactions, or they can link their bank or credit union accounts or debit card for payments and receiving money. Venmo users also have the option to hold funds in their Venmo accounts or withdraw it back to their bank accounts.
Zelle vs. Venmo: A Detailed Comparison
Transaction Speed
When considering Zelle vs Venmo, transaction speed is one of the most critical aspects. Zelle transfers, due to its integration with regular online banking apps, tend to be instantaneous. The money moves directly from one bank account to another, usually within minutes, provided both sender and recipient’s bank accounts are among Zelle’s participating banks.
On the other hand, Venmo transactions are not instant. Money sent to a Venmo account needs to be manually transferred out to a bank account, which can take one to three business days if using a standard bank transfer. However, Venmo offers an Instant Transfer feature where for a small fee, you can transfer your Venmo balance to a linked bank account or eligible Mastercard or Visa debit card within 30 minutes.
Fees
When it comes to fees, Zelle stands out as a free service. There’s no cost to send or receive money, and since it’s tied to your bank account, there are no fees for transferring money to your bank.
Venmo, in contrast, is free for personal transactions when using a linked bank account, a Venmo balance, or a debit card from a major bank. However, if you use a credit card to send money or fund your Venmo account, there’s a 3% fee. Also, Venmo’s Instant Transfer feature comes with a 1.75% fee, with a minimum fee of $0.25 and a maximum fee of $10.
Transfer Limits
Zelle and Venmo have different transfer limits. For Zelle, if your bank or credit union is a partner, the bank decides the limits on how much money you can send. If your bank isn’t a partner, you can still use Zelle by signing up on its app, but you’ll be limited to sending $500 per week.
On the other hand, when you open a Venmo account, you’re initially limited to sending $999.99 per week. However, once you verify your identity, your limit increases to $19,999.99 per week for peer payments. There’s also a $5,000 per transfer limit. If you want to transfer more than that, you’ll need to initiate multiple transfers.
Security
Security is a top concern when dealing with money transfers. Both Zelle and Venmo use data encryption to protect users. Zelle, being directly embedded within your bank or credit union’s app, benefits from the same security measures your bank uses. Unauthorized transactions, if reported promptly, are usually covered by your bank’s protection policy.
Venmo also employs security measures like encryption and multi-factor authentication to protect user information. However, keep in mind that Venmo’s social nature (where transactions are shared on a social feed) could potentially expose more information than some users are comfortable with. Venmo users can adjust the privacy settings to limit who sees their Venmo activity.
Usability
Zelle’s major advantage is its integration into the existing banking app of many major banks, meaning there’s no separate app to download or account to set up. Money sent via Zelle goes directly into the recipient’s bank account, making it straightforward for users who simply want to transfer money.
Venmo, on the other hand, operates via a separate app, which is also part of its appeal. The Venmo app integrates a social aspect into the money sending process, allowing users to attach notes, emojis, and likes to their transactions. The Venmo app is a digital wallet that offers a more social and engaging experience.
Social Aspects
When comparing Zelle vs. Venmo on social aspects, Venmo clearly has an edge. Venmo transactions come with a social aspect, as each transaction can be shared on the Venmo feed. Venmo users can like and comment on these transactions, making the experience more interactive. This feature, while enjoyable for some, might not be everyone’s cup of tea, especially for those who prefer more privacy in their transactions.
Zelle, in contrast, doesn’t offer any such social features. The service is primarily designed for quick and easy money transfers and doesn’t share transaction details on a social feed.
Zelle vs. Venmo: Specific Use Cases
Best for Immediate Transfers
Zelle outperforms Venmo when it comes to transfer speed. Since Zelle transfers are typically instant among participating banks, it’s a better choice for urgent transfers.
Best for Small Businesses
Venmo could be a better choice for small businesses. The ability to accept payments via Venmo can be a convenience factor for customers. Moreover, Venmo transactions are public by default (though the amount is hidden), which might serve as a form of free advertising for businesses.
Best for Social Transactions
Venmo’s social features make it ideal for social transactions. It’s a popular choice among friends splitting bills or sharing expenses, as the transaction notes and social feed can make the payment process more engaging and transparent.
Best for Larger, Infrequent Transfers
Depending on the bank, Zelle might have higher transfer limits compared to Venmo, making it more suitable for larger, infrequent transfers like rent or high-ticket purchases.
User Reviews and Feedback
Reviews and feedback from Zelle and Venmo users generally align with the strengths of each app. Zelle users appreciate the speed and ease of transferring money directly between bank accounts, especially for those who prefer not to hold funds in another app. On the other hand, some users wish Zelle had more features and functionalities outside of simple peer-to-peer payments.
Venmo user reviews often highlight the app’s user-friendly design and its social features. Users enjoy the ability to like and comment on transactions. However, some users express concern about the privacy of their transactions, even though they can be made private.
Final Verdict
When deciding between Zelle vs. Venmo, it ultimately comes down to your personal needs and preferences. Zelle’s strength lies in its speed and direct bank-to-bank transfers, making it an excellent choice for quick and simple transactions. On the other hand, Venmo’s social features and digital wallet functionality appeal to users who enjoy a more engaging and interactive payment experience.
If you prioritize speed, convenience, and prefer to avoid holding funds in a separate app, Zelle might be the better choice. However, if you appreciate the social aspect of transactions and don’t mind the occasional fee for instant transfers or credit card usage, Venmo could be the more suitable option.
Frequently Asked Questions
Can both apps be used internationally?
Zelle is limited to transactions within the U.S. between participating banks. Venmo, on the other hand, can be used for transactions between U.S. residents and also works with some international cards. However, both apps primarily cater to users based in the United States.
What happens if you send money to the wrong person?
With both Zelle and Venmo, it’s crucial to double-check the recipient’s details before sending money, as reversing transactions can be challenging. In some cases, transactions may not be reversible. If you accidentally send money to the wrong person, it’s best to contact the app’s customer support immediately for assistance.
How to handle disputes and refunds?
In case of disputes or refund requests, both Zelle and Venmo advise users to try to resolve the issue directly with the other party involved. If that doesn’t work, you can contact each app’s customer support for further assistance. Keep in mind that neither app guarantees a refund for unauthorized transactions or payment disputes, so it’s crucial to exercise caution when sending money.
Are Zelle and Venmo safe to use?
Yes, both Zelle and Venmo use data encryption and secure servers to protect users’ information and prevent unauthorized transactions. However, users should also take steps to protect their accounts, such as using strong, unique passwords and enabling multi-factor authentication if available.
Can I link multiple bank accounts to Zelle or Venmo?
Zelle allows you to link multiple bank accounts, but you can only have one active account at a time. On the other hand, Venmo allows you to link and transfer funds between multiple bank accounts.
Can I use Zelle and Venmo for business transactions?
Zelle is primarily designed for personal use between friends and family, and their terms of service prohibit using it for business transactions. Venmo, however, offers a business profile option that allows small businesses to accept payments via the app.
Can I cancel a payment once it’s sent?
In most cases, Zelle payments are instant and cannot be canceled once they’re sent. However, if the recipient has not yet enrolled with Zelle, the payment will remain pending and the sender may be able to cancel it. Venmo payments to existing users are also instant and can’t be canceled. If you paid a new user or an email address, you can cancel the payment on the Venmo app until they claim it.
How do I dispute a charge on Zelle or Venmo?
With both Zelle and Venmo, the first step is to contact the person you sent money to. If that doesn’t resolve the issue, you can file a dispute through your bank (for Zelle) or through Venmo’s support team.
How can I increase my sending limit on Zelle and Venmo?
Your sending limit on Zelle is determined by your bank, so you would need to contact them to discuss any possible adjustments. On Venmo, you can increase your sending limit by verifying your identity. This involves providing information like your zip code, last four digits of your SSN, and your birthdate.
How fast are transfers from Venmo to my bank account?
Transfers from your Venmo account to your bank account typically take 1 to 3 business days. However, for a 1% fee (minimum $0.25 fee, maximum $10 fee), you can opt for an Instant Transfer to an eligible linked debit card or bank account.
Do I need a specific type of bank account to use Zelle or Venmo?
You don’t need a specific type of bank account to use either service. As long as your bank account is based in the U.S., you should be able to use it. However, certain features may only be available with participating banks.
Can I use Zelle or Venmo to pay in stores?
Zelle is primarily designed for peer-to-peer payments and isn’t typically accepted as a payment method in stores. Venmo, however, can be used to pay at many retailers and other businesses that accept PayPal. Venmo also offers a Venmo MasterCard debit card that can be used anywhere MasterCard is accepted in the U.S.