Transfer on Death (TOD) Registration

http://www.sec.gov/answers/todreg.htm

Raiding your 401(k)

It should be a last resort, but if you really need the money, here's how to do it wisely.

By Gerri Willis, CNN

September 25, 2008: 12:09 PM ET



http://money.cnn.com/2008/09/25/pf/saving/toptips/index.htm?postversion=2008092512

For more information on managing your largest investment, check out Gerri Willis' "Home Rich," now in bookstores.

NEW YORK (CNNMoney.com) -- A crumbling economy may be tempting you to tap into your 401(k) early. If you have no other options, here is what you need to know.

1. Get the rules

You can access your retirement money through a hardship withdrawal if you need emergency funds. But your circumstances must meet certain criteria.

First, you can only use the money if you need to pay down medical expenses, avoid foreclosure on your primary home, pay college tuition, lose your job, become disabled or need to cover funeral expenses.

Now, you will probably have to pay a 10 percent penalty if you are 59.5 years old or less. On top of that 10 percent, you're also paying income taxes. Bottom line is that about 40% of your distribution is going right back to Uncle Sam says Tom Orecchio of the financial advising company Greenbaum and Orecchio.

And that's an expensive proposition. Keep in mind that employers are not required to offer you hardship withdrawal options on your plan in the first place.

2. Investigate Loans

If you take a loan out of your 401(k) you're basically borrowing money from your nest egg and you pay it back to yourself without having to pay a penalty or taxes.

Generally you have five years to pay it back. In some circumstances, like you're buying your first home, you can take up to 15 years to pay back your 401(k). And there are limits. For the most part you can only take up to 50% of the value of your 401(k) up to $50,000.

These days, taking out a loan is especially risky because if you're fired or you quit, you'll have to pay back the entire amount that you borrowed within two or three months. If that's just not possible, you'll owe taxes and a 10 percent penalty on what you took out.

Another reason 401(k) loans aren't ideal? You're basically taxed twice on your money since the money you repay the loan with is after tax dollars and you're hit again when you withdraw the money.

3. Suffer the consequences

Any way you look at it, if you take money out of your retirement fund before you're 59.5 years old, you are running the risk of running out of money when you retire.

On top of all the penalties and taxes you may be subject to, your employer can also charge you fees for taking out a loan or a hardship withdrawal. And it's not cheap. There can be annual service fees of $3 to $75 says Orecchio.

And, of course, your employer can change the rules of the game at any time. Make sure that any 401(k) loan or hardship withdrawal is the absolute last resort.

Are you retired or approaching retirement and worried about your economic future? Gerri Willis is looking for people willing to share their concerns about the financial crisis and how it's impacting their investments, lifestyle and/or retirement plans. If you're interested in being featured on CNN, please email us your name, contact information and a photo, along with a brief summary of your situation.

Gerri's Mailbox: Got questions about your money? We want to hear them! Send e-mails to toptips@cnn.com or click here - each week, we'll answer questions on CNN, Headline News and CNNMoney.com.

Starting a Plan

http://www.chase.com/ccp/index.jsp?pg_name=ccpmapp/individuals/investments/page/wrkforce

Whether you've just entered the workforce, or have been in it for a while, it's important to start a plan early and know the tax-advantaged investment choices available to you. By starting early, and getting in the habit of saving on a regular basis, you can make funding your retirement and other life goals relatively easy.

Know your investment choices

There are two key investment options that go into starting a plan. If you have a qualified retirement plan at work, such as a 401(k) or 403(b), you can make pre-tax contributions, which are allowed to grow tax-deferred. If you do not have a retirement plan at work, or if you do have a plan but would like additional retirement funding, you may want to consider an Individual Retirement Account (IRA).

There are several IRA plans available, including a Traditional IRA which enables you to make pre-tax contributions, if you're eligible, and allows any earnings to grow tax-deferred until withdrawal.* With another IRA, called a Roth IRA, you make after-tax contributions, if you're eligible, and any earnings grow tax-free.***

In addition to starting early and knowing your investment choices, starting a plan should involve the guidance of a financial advisor. A Chase Retirement Expert** can help you start building a plan that fits your unique financial and retirement needs.

The power of starting early



Hypothetical example assuming beginning-year contributions at 8% annual return. Not representative of any specific investment.

Personal budget

http://en.wikipedia.org/wiki/Personal_budget

Wallet Woes: The Rule of 72 in reverse.

January 11, 2008 at 5:50 am · Filed under Personal Finances

http://www.discusseconomics.com/personal-finances/financially-fine-issue-1-rule-of-72-personal-finances/

How many of you would purposely spill ten dollars worth of quarters down the grate of a sidewalk? Would you leave your five-dollar bill on a windy open windowsill?

Which would you prefer, paying a parking or speeding ticket or having strangers (*cough* the banks *cough*) help themselves to money from your wallet? Here's one of our more popular posts originally released in 2006.

Times like the holiday season involve buying gifts, parties, going places, spending paper, coin, or plastic money. Come January many people may greet the New Year with a big financial hangover. Well there's help! Forget the vitamin B and hair of warthog during the full moon.

It's too bad that your credit cards don't come with the warning "please use common sense when using." (Not that anybody would stop, but at least you'd have a friendly reminder you were the cause of your own financial demise.) What follows now is the cure to a post holiday or any financial hangover.

It is an often-noted fact that although people faithfully pay down their credit card balances every month it doesn't diminish as expected.

What the credit card companies don't want people to remember is that as long as a cardholder carries a balance interest is accruing as you breath. What they calculate will happen is that they will be able to pile on the interest penalties faster than a person can pay down their balance. Guess what! In too many instances people do exactly what they calculate! So you paid $20 on your $300 balance. Now the total you owe is $290 since you have to pay off the interest before the principal. It's not new math.

Let's do some bean counting for illustrative purposes. Take two similar debts with the same starting balances of $5000, the same monthly payments of $200. They also have the same interest rate of 8%. One is a car loan, the other a credit card balance

The car will be paid for in 40 months with total interest paid of $488. You will be free of the credit card balance after 8 years with an interest hit of $949 double the interest owed on the car loan!

The car loan is a fixed debt, because the borrower will pay a specified amount of interest and no more. The credit card balance is a revolving debt. Once someone gets spending fast enough it is like an unstoppable revolving door. The cardholder could pay an unlimited amount of interest.

Canadians always ask: What is the interest rate? What will be my monthly payment? Instead they should be asking: What is the total cost to borrow and when is my debt free date? Interest rates are red herrings as shown by this example. Let's compare a personal loan at 7.75% and a credit card rate of 5.9%. Each has a balance of $7000 and the monthly payments are $200. The borrower will incur interest costs of $961 and $1378 respectively. OK so a few hundred dollars interest is no big deal right? However the debt free date shows why revolving debt is financial bondage. The debt free date for the personal loan is 3.5 years. The borrower will not pay off the lower interest credit card balance for 12 years.

It is a very expensive privilege to carry a balance on a revolving debt. The companies who market credit under many names would rather people forget that fact. Here is more motivation: Which accountholders do the companies prefer the most? Answer: The people who always pay only the minimum every month. That is why companies regularly send a steady stream of applications to those households, children and pets included, and never offer to raise the credit limit on accounts that are paid in full each month.

There is a reason it is called the credit trap or destructive debt. If people want to achieve financial independence they must stop allowing lenders to help themselves to money from their wallets. In a future issue I will discuss constructive debt.

Technorati Tags: rule of 72

Compound Interest-- Simply Wonderful

Tom Koziol explains how compound interest can make you a much better saver--or plague you with rapidly spiraling debt--depending on whether and how you're investing or borrowing. Compound interest can multiply your wealth--or keep you in poverty.

by Tom Koziol

http://www.frugalfun.com/compoundinterest.html

It is reported that Albert Einstein called compound interest the ninth wonder of the world and Ben Franklin extolled the virtues of compound interest to anyone who would listen.

OK, but what is compound interest?

Compound interest means that interest is paid not only on the principal (initial loan balance), but also on the interest it earns. It's simply wonderful if you are on the receiving end. Absolutely horrible if you are on the paying end. This article will give the math. You determine on what side of the compound interest equation you would like to live.

I'll use the industry standard example of $1,000 at 5 per cent, compounded annually for this example. Be advised, however, that compounding also happens on a more frequent basis. Some money market funds, for example, pay interest daily and some savings account pay interest daily but credit the interest quarterly.

Note: Always check with the financial institution for the exact details on how they pay and credit interest to your account.

$1,000 at 5% produces $1,050 after year one. At the end of year 2, the amount in the account is $1,102.50. After year 3, the account grows to $1,157.63.

The interest is always paid on the balance. This means at the end of year two, the bank multiplies the $1,050 (balance in account after year one) by 5%‹producing $52.50‹then adds the 52.50 to the $1,050. At the end of year 2, the 5% is multiplied times $1,102.50 and added to the $1,102.50, giving a new balance of $1,157.63. And on and on and on it goes.

If that $1,000 you deposited in year one received that same 5% each year for the next 25 years, you will have $3,481.29 in your account assuming no withdrawls.

That's all there is to it. Of course, having the $1,000.00 to begin earning the interest may be a problem. Guess what? Compound interest has no minimum on which it will pay. That's right, if you have only $100.00 to deposit, deposit it.

Get started today reaping the simply wonderful benefits of compound interest.

That's the receiving end. The "good" end. What about the paying end?

Look at the numbers again but imagine those dollars are flowing out of your account. That's right. Year after year, your creditor gets to take that amount from your account until your debt is paid.

Ouch!

Of course, the dynamics of the loan will vary per loan but essentially your account goes one way. Down!

[Editor's note: Compound interest is why you should pay off your credit cards, in full, every month.]

Always check the contract so you know the term, interest, payment, length, amortization schedule of the loan and prepayment penalties, if any.

There you have it. The two sides of compound interest.

Compound Interest - A Basic Investment Tool

by Bob Ward

http://www.betterbudgeting.com/articles/money/compoundinterest.htm

Basic Investing Principles



http://www.aarp.org/money/financial_planning/sessionsix/basic_investing_principles.html

Investment Pyramid

http://www.investopedia.com/terms/i/investmentpyramid.asp

Just lurking

Bob, after considering all the many knowledge-ladden boards that a new investor can get lost on, it occurred to me what the simplest and most likely that a new investor might approach first.

This be it. Investing 101

However, the 101 Ibox was nothing as I expected to see. IMO, people read the Ibox first, and make their determination from there, whether they wish to read posts.

I suggest revising the IBox to immediately address the important matters, without even a need to thumb thru posts.

By doing so, I-101 could become a 'first-stop' literally advised by IHub, to ALL new members, since there are simply too many other boards addressing these needs, and the newbie is too easily overwhelmed.

IMO, this board (and IBox in particular) could be the Home Depot of all investment knowledge boards, but the IBox needs a 'store front' that brings them in and keeps them!

I would not automatically consider margin as bad tool.

Here is my article on the margin issues:

Leverage - margin debt

http://www.blastinvest.com/article/02_21_2005.htm

great idea this board

looks like a failure though

great idea this board

looks like a failure though

Hello, I am a very newbie, and I was wondering if anyone has any recommendations regarding brokerage firms? The one I use currently has a limit of ordering shares online, and it gets to be difficult always having to call customer service to place larger trades. I would appreciate any suggestions. Thanks.

hello all i am a newbe i am trying to get set up with amertrade as we talk and i will have many ? in the future thank you for having me

Momentum investing tool:

http://moneycentral.msn.com/content/Investing/Findhotstocks/P52779.asp?Rating=10&PageID=52779#Ra...

Glad to hear that Joy
IMO, in my opinion, iHub is the Best investors site, JMHO though, just my humble opinion :^)

Members have been great in answering my dumb questions. Glad I found this site!

Boards for Automatic Investment Management
Both of these boards look Good for anyone looking at an Automated Investing system. Just remember that Any investing has Risk involved with it. Please make sure to Learn as much as you can about investing and the investments you are making. Read and Learn as much as you can Before you start. Alexander Elder has a phrase that goes something like this "If you want to Invest something into the Markets then Invest your Time in Learning the Markets". I have only been Learning the Markets for the last 3 years and continue to Learn, a neverending process as there is Always something to Learn. Knowledge is an extremely powerful tool, especially with Investing. Just take your time and make sure you are Comfortable with your knowledge and skill level Before putting any cash on the table. Here are the Automatic Management boards that I believe would be worth Learning about :^)
#board-949 A.I.M. Investing
#board-1074 XDev Extreme Deviation Investing

Hi Joy,
I missed your post. Welcome to iHub! It took me a long time to learn all of the different abbreviations. I still find myself asking what some of them mean. The investopedia should help. I will have to look up IMH myself but believe it is part of In My Humble Opinion (IMHO)? See, IMH is another one I am not sure of <GG>. Just ask a lot of questions as Most everyone here on iHub will be willing to help. Good Luck on your adventure into investing. Just remember to use a lot of Caution when starting out and look for Safe trades, if there is such a thing.
Take Care Joy! Sincerely, Bob :^)

ozarkmom43...http://www.investopedia.com/categories/messageboard.asp

LOL=Laughing Out Loud

Very new to investing - can you tell me the meaning of:

LOL (lots of luck? love em or leave em? lots of love?)

I assume EOM is end of message

IMH - I am holding?

Thanks!

You are welcome Cassandra
I just found that link today and it looks as though it could be used for most any kind of legal research. It came up using a Google search with "accountant resigns". Google search is an amazing tool and I use it often when researching a subject. I really enjoy answering questions though as it then leads to a mutual discovery of the answers. Most of the time for questions that have not occured to me to ask myself. Keep the questions coming.
Enjoy the Weekend Cassandra! :^)

bbgold: Thanks, that's very helpful!

Here is a reason for a resignation.
May or may not be the case with the company you are referring to though :^)
http://www4.law.cornell.edu/uscode/15/ch2B.html
Sec. 78j-1. - Audit requirements
(a) In general

Each audit required pursuant to this chapter of the financial statements of an issuer by an independent public accountant shall include, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the Commission -

(1)

procedures designed to provide reasonable assurance of detecting illegal acts that would have a direct and material effect on the determination of financial statement amounts;

(2)

procedures designed to identify related party transactions that are material to the financial statements or otherwise require disclosure therein; and

(3)

an evaluation of whether there is substantial doubt about the ability of the issuer to continue as a going concern during the ensuing fiscal year.

(b) Required response to audit discoveries


(1) Investigation and report to management


If, in the course of conducting an audit pursuant to this chapter to which subsection (a) of this section applies, the independent public accountant detects or otherwise becomes aware of information indicating that an illegal act (whether or not perceived to have a material effect on the financial statements of the issuer) has or may have occurred, the accountant shall, in accordance with generally accepted auditing standards, as may be modified or supplemented from time to time by the Commission -

(A)


(i)

determine whether it is likely that an illegal act has occurred; and

(ii)

if so, determine and consider the possible effect of the illegal act on the financial statements of the issuer, including any contingent monetary effects, such as fines, penalties, and damages; and

(B)

as soon as practicable, inform the appropriate level of the management of the issuer and assure that the audit committee of the issuer, or the board of directors of the issuer in the absence of such a committee, is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of such accountant in the course of the audit, unless the illegal act is clearly inconsequential.

(2) Response to failure to take remedial action



If, after determining that the audit committee of the board of directors of the issuer, or the board of directors of the issuer in the absence of an audit committee, is adequately informed with respect to illegal acts that have been detected or have otherwise come to the attention of the accountant in the course of the audit of such accountant, the independent public accountant concludes that -

(A)

the illegal act has a material effect on the financial statements of the issuer;

(B)

the senior management has not taken, and the board of directors has not caused senior management to take, timely and appropriate remedial actions with respect to the illegal act; and

(C)

the failure to take remedial action is reasonably expected to warrant departure from a standard report of the auditor, when made, or warrant resignation from the audit engagement;


the independent public accountant shall, as soon as practicable, directly report its conclusions to the board of directors.

(3) Notice to Commission; response to failure to notify



*XX* An issuer whose board of directors receives a report under paragraph (2) shall inform the Commission by notice not later than 1 business day after the receipt of such report and shall furnish the independent public accountant making such report with a copy of the notice furnished to the Commission. If the independent public accountant fails to receive a copy of the notice before the expiration of the required 1-business-day period, the independent public accountant shall -

(A)

resign from the engagement; or

(B)

furnish to the Commission a copy of its report (or the documentation of any oral report given) not later than 1 business day following such failure to receive notice.

(4) Report after resignation



If an independent public accountant resigns from an engagement under paragraph (3)(A), the accountant shall, not later than 1 business day following the failure by the issuer to notify the Commission under paragraph (3), furnish to the Commission a copy of the accountant's report (or the documentation of any oral report given). *XX*

(c) Auditor liability limitation



No independent public accountant shall be liable in a private action for any finding, conclusion, or statement expressed in a report made pursuant to paragraph (3) or (4) of subsection (b) of this section, including any rule promulgated pursuant thereto.

(d) Civil penalties in cease-and-desist proceedings



If the Commission finds, after notice and opportunity for hearing in a proceeding instituted pursuant to section 78u-3 of this title, that an independent public accountant has willfully violated paragraph (3) or (4) of subsection (b) of this section, the Commission may, in addition to entering an order under section 78u-3 of this title, impose a civil penalty against the independent public accountant and any other person that the Commission finds was a cause of such violation. The determination to impose a civil penalty and the amount of the penalty shall be governed by the standards set forth in section 78u-2 of this title.

(e) Preservation of existing authority



Except as provided in subsection (d) of this section, nothing in this section shall be held to limit or otherwise affect the authority of the Commission under this chapter.

(f) 'Illegal act' defined



As used in this section, the term 'illegal act' means an act or omission that violates any law, or any rule or regulation having the force of law

I do know that Accountants don't resign if they're getting paid and they don't feel in danger from association. It seems like common sense, but I have to admit I am drawing a blank right now as to citable references. Accountant resignation is not a terribly common occurrence.

They give up income when they resign and in much the way double-entry bookkeeping ingrains into them the need for an equal credit entry for every debit entry, they have to feel like they've got a really good reason for giving up the income.

There are some who would portray this as a "good" sign

I'd rank that up there with "Call the company". Can't imagine how an accountant resignation could ever be considered "good".

since changing to a small accounting firm after the resignation of one of the Big 5 would save money.

If a company fired one accountant to move to a cheaper one, I'd give that a "maybe". Doesn't wash if the accountant resigns.

Keep in mind the above is only my opinion and although it is based on years of observation and experience, it's still only my opinion. Wish I could cite some references. I would think the patterns that happen to companies after accounting firms resign would be quite well-documented somewhere.

Does anyone have any links or information about how the resignation of the Certifying Accountant is universally consider a bad sign for a company?

There are some who would portray this as a "good" sign since changing to a small accounting firm after the resignation of one of the Big 5 would save money.

I also learned the hard way about big losses being better than huge losses, and fortunately learned it before CHTR, or I'd have been in deeper hurt.

The lesson I hadn't learned prior to CHTR, though, was to keep an eye on the positions (even the LTBH's) and continually re-evaluate them and my expectations for future performance.

I repeated that mistake in my IRA, which is why I'm looking for replacements now for F and JNPR and will watch more closely. At least once a month anyway.

That is excellent advice Bob. Too many get hung up on what they paid for the stock. After it's been purchased the only relevance the price paid has is to the IRS when computing a gain or a loss.

The decision about whether to hold or sell a stock is entirely dependent on how it is expected to perform in the future, which is often a changing scenario which must contiuously be revevaluated.

I learned the lesson the hard way, but I did learn it.

I liked this quote from a post of yours: "What you paid for the stock is irrelevant to its current value. "

It is easy to get wrapped up in the "But I've lost too much money" mindset.

When it comes to positions in your account, yesterday doesn't matter. Only today and tomorrow do.

If you can't honestly *expect* (not "hope") a position in your account will be worth more in the future than it is today, you have no choice but to sell. What you paid for the position is irrelevant to this decision.

My past brokerage statements have hundreds of positions I've sold at a loss but consider somewhat "winning" trades because I sold before the losses got deeper and deployed the funds elsewhere where I could recoup the losses.

If I'm in a stock that's worth $5 a share right now, but I paid $10 a share for it and $4 per share looks far more likely in the future than $6 per share, I'd sell and put the funds in other stocks that I've determined, through good research and the application of critical thinking skills (as well as availing myself of the advice of people who are experts in areas I'm ignorant of, such as TA), are more likely than not to go up.

I don't ask myself "But what if the stock goes back to the $10 I paid for it?". What I paid for it is irrelevant. What it's worth now and what it'll be worth tomorrow is all that matters.

Not only that, the loss I incur in that first stock will offset the gains I make in the replacement one(s), which makes me happier at tax time.

To use a real-life example that happened to me, I bought CHTR pre-IPO then continued to buy it (dollar-cost averaging) for several months. It stayed very stable for a very long time, so I quit buying it, considered it a "core" position, and started margining (borrowing money) against it to increase the buying power I was working with for daytrading.

I largely ignored the position until a margin call woke me up. They have a way of doing that. A broker's version of a double-espresso.

When I checked, the stock had tanked to $15 and I had an average cost of closer to $18.

I sold all of it and deployed the money elsewhere. Some into stocks that did better; some into "toys" like my backhoe.

If I looked at it from the perspective of how much I paid for it versus what I sold it for, I lost an enormous amount of money. And since I did very well that year in trading, the loss on that one helped offset a lot of gains.

The stock climbed a little bit after I sold, but I had zero regrets. By the time it had, I'd made more money elsewhere than CHTR's gains during that time would've made me. And was able to use the CHTR loss to essentially erase a lot of my gains at tax time.

Keep in mind I'd bought this stock everywhere from $12 to $20 and I had a lot of money wrapped up in it. While I was ignoring it, it had "stabilized" in the $22-$23 area, so I felt pretty comfortable margining it.

It's trading today at 83 cents. If I'd held the position, not only would I not have the backhoe, my position wouldn't put many tanks of fuel into it.

If you look at this chart, you can tell where I was buying it, how long I held it as a core position and margined it, where I sold, and how much hurt I would've endured had I not had the huevos to sell it at a huge loss.

Tina: Here are links to two sites that I have found helpful in looking up the meaning of various terms used in investing.

http://www.investorwords.com/

http://www.marketvolume.com/glossary/a.asp

I agree. Especially when starting out small and wanting to build enough of a portfolio to take some of it out to self-manage in the riskier equity markets, doing commission-less buying is a very good thing.

One more piece of advice for novice investors that even us grizzled veterans heed: Avail yourself of the collective wisdom around you!

For example: #msg-853691

Thanks Mr. Ed,
Yes, the Live reactions can be much more interesting than waiting to post and read posts :^)
http://www.tgllive.com/

bbgold-I'll ask him,I know he's in TGLlive chat often,in fact many of the better traders use chat more than the boards now.

Hi Tina,

Here's my recommendation. I don't "trade" stocks (buy & sell often) very much. I tend to try to buy stock in established firms who are #1-2 in their industry that have the potential to increase in price over a longer time period (3-5 years) and pay dividends. Once you own at least 1 share of such a firm, you will be automatically enrolled in their dividend reinvestment plan (DRIP). This way, all the dividends you earn can be rolled back to buy more of the stock. But the big plus is you can buy additional shares (up to a dollar limit set by the plan) directly through the DRIP administrator without paying brokerage commissions. You wil get periodic DRIP statements which contain a form you can send in with a check to purchase additional shares.

Bob can probably explain more about DRIPs but it is, in my opinion, a good way to dip your toe into the market.

Thanks Mr. Ed, looks Good
I see that Lance has still been posting on SI, Wayne also. Any idea why Lance, Wayne and ChrisJP have not been over on iHub lately? :^)

bb,or Bob-one of my favorite posts on trading,you may want to re-write,or not even use it,you may also need a Lance-English dictionary-http://www.investorshub.com/boards/read_msg.asp?message_id=129637

1. Never buy a stock on Margin
2. Never buy a stock in a Downtrend
3. Never buy a stock you have not Researched
4. Never buy a stock without setting a Stop Loss Limit
5. Never buy a stock with 100% of your Portfolio
6. Never buy a stock with money you cannot afford to Lose
7. Never buy a stock you are not comfortable Owning
I used to remember 10 of these but my memory is not as good as it used to be. I will most likely remember the other three when I break them again <GG> :^)

Which brings up another very important point new investors should know about. Margin vs cash.

In a cash account, you can only guy as much stock as you've got cleared funds to buy. Cleared funds (if I remember correctly) are funds deposited to your account 3 days after closing a position.

Margin, however, lets you borrow against stock you own, giving you the ability to buy more stock than you can afford. You borrow extra cash from the brokerage, using existing stock as collateral.

Trading on margin is a way to give yourself more buying power than you could afford with a cash account, potentially doubling your earning potential, but it's very, very risky.

If you buy a stock using all of your cash, then borrow money against it and spend all of that money buying another stock, if they both go down or the total value of one position decreases more than the other goes up, you're going to get a "margin call". A demand to deposit additional funds in your account.

Most of us have been there and it's not fun. You either have to send in more money or sell one or both stocks at prices you didn't want to. So you can make money twice as fast on margin but can also lose it twice as fast or faster. It's entirely possible to have an account wiped out to the point where you have no stock and owe the broker money. Ask me how I know. :( Which reminds me of something else. Don't let a broker manage your account for you if you're dealing with a lot of money. He could (as likely happened to me) have your account buy things at the highs to sell them out of his account and let you suffer the downside.

Margin, like a bank loan with collateral, can also be withdrawn from the brokerage for other purchases.

Also not a good idea. Seattle is full of homes that were paid for by borrowing money against GNET stock, then the houses had to be sold quickly as GNET/INSP tanked. Instances in which several hundred thousand dollars quickly evaporated and all the victims were left with was debt and Alternative Minimum Tax (AMT) bills many times larger than the amount of money they'd made.

Inexperienced investors shouldn't use Margin and experienced investors often won't.

Matt: As long as folks understand the difference between investing and day trading.

See below...

Regards,
LG

------------------

SEC Approves Proposed Rule Change Relating To Day-Trading Margin Requirements

Executive Summary

On February 27, 2001, the Securities and Exchange Commission (SEC) approved
amendments to National Association of Securities Dealers, Inc. (NASD®) Rule 2520
relating to margin requirements for day traders (the “amendments”).1 The amendments
become effective on September 28, 2001 and are substantially similar to amendments
by the New York Stock Exchange (NYSE) to its margin rules.2

The text of the amendments and Federal Register version of the SEC Approval Order
are attached (see Attachments A & B). For a detailed description of the amendments,
as well as specific examples of certain margin calculations under the amendments,
members should review the attached SEC Approval Order (see Attachment B).

Questions concerning this Notice may be directed to Susan DeMando, Director,
Financial Operations, Member Regulation, NASD Regulation, Inc. (NASD Regulation),
at (202) 728-8411, or Stephanie M. Dumont, Associate General Counsel, Office of
General Counsel, NASD Regulation, at (202) 728-8176.

Background

Because Regulation T initial margin requirements and NASD/NYSE standard
maintenance margin requirements3 are calculated only at the end of each day, a day
trader who has no positions in his or her account at the end of the day would not incur a
Regulation T initial margin nor a standard maintenance margin requirement, assuming no
losses in the account from that day’s trading. Current NASD/NYSE initial margin
provisions, however, generally require a customer to deposit margin of at least $2,000,
unless in excess of the cost of the security.

Although the day trader may end the day with no position, the day trader’s clearing firm
is at risk during the day if credit is extended. To address this risk, the NASD and
NYSE require day traders to demonstrate that they have the ability to meet the initial
margin requirements for at least their largest open position during the day. Specifically,
under current margin requirements, a customer who meets the definition of day trader
under the rule must deposit in his or her account the margin that would have been
required under Regulation T (i.e., the 50 percent initial margin requirement) if the
customer had not liquidated the position during the trading day. If the customer day
trades, but is not considered a “day trader,” the customer is still required to post 25
percent of the position held during the day.4 Currently, this payment is due after the risk
has been incurred. Therefore, the funds are not available during the trading day when
the clearing firm is at risk.

Currently, if a customer’s day trading results in a day-trading margin call, the customer
has seven days to meet the call by depositing cash or securities in the account. Because
day traders typically end the day flat and this day-trading “margin” deposit is not
securing a margin loan, the customer is not required to leave the margin deposit in the
account and may withdraw the deposit the day after the deposit is made. If the
customer fails to meet a day-trading margin call, no specific action to the customer
account is required to be taken by the firm. There are no securities to liquidate, as there
would be for an existing position, because day traders typically end the day flat.

Description Of Amendments

The amendments address the deficiencies that have been identified with existing rules
relating to day-trading margin activities. Specifically, the amendments provide for the
following changes to current margin requirements:

(1) Definition of “pattern day trader.” Under the amendments, “pattern day traders” are
defined as those customers who day trade four or more times in five business days. If
day-trading activities do not exceed six percent of the customer’s total trading activity
for the five-day period, the clearing firm is not required to designate such accounts as
pattern day traders. The six percent threshold is designed to allow clearing firms to
exclude from the definition of pattern day trader those customers whose day-trading
activities comprise a small percentage of their overall trading activities.

In addition, if the firm knows or has a reasonable basis to believe that the customer is a
pattern day trader (for example, if the firm provided training to the customer on day
trading in anticipation of the customer opening an account), the customer must be
designated as a pattern day trader immediately, instead of delaying such determination
for five business days.

(2) Minimum equity requirement. The amendments require that a pattern day trader
have deposited in his or her account minimum equity of $25,000 on any day in which
the customer day trades. The required minimum equity must be in the account prior to
any day-trading activities; however, firms are not required under the rule to monitor the
minimum equity requirements on an intra-day basis. The minimum equity requirement
addresses the additional risks inherent in leveraged day trading activities and ensures
that customers cover losses incurred in their accounts from the previous day before
continuing to day trade.

(3) Day-trading buying power. The amendments limit day-trading buying power to four
times the day trader’s maintenance margin excess. This calculation is based on the
customer’s account position as of the close of business of the previous day.

(4) Day-trading margin calls. Under the amendments, in the event a day-trading
customer exceeds his or her day-trading buying power limitations, additional restrictions
are imposed on the pattern day trader that more adequately protect the firm from the
additional risk and help prevent a recurrence of such prohibited conduct. Members are
required to issue a day-trading margin call to pattern day traders that exceed their day-
trading buying power. Customers have five business days to deposit funds to meet this
day-trading margin call. The day-trading account is restricted to day-trading buying
power of two times maintenance margin excess based on the customer’s daily total
trading commitment, beginning on the trading day after the day-trading buying power is
exceeded until the earlier of when the call is met or five business days. If the day-trading
margin call is not met by the fifth business day, the account must be further restricted to
trading only on a cash-available basis for 90 days or until the call is met.

(5) Two-day holding period requirement. The amendments require that funds used to
meet the day-trading minimum equity requirement or to meet a day-trading margin call
must remain in the customer’s account for two business days following the close of
business on any day when the deposit is required.

(6) Prohibition of the use of cross-guarantees. Under the amendments, pattern day
traders are not permitted to meet day-trading margin requirements through the use of
cross-guarantees. Each day-trading account is required to meet the applicable
requirements independently, using only the financial resources available in the account.
Accordingly, pattern day traders are prohibited from using cross-guarantees to meet the
minimum equity requirements or to meet day-trading margin calls.

In addition, the amendments revise the current interpretation that requires the sale and
repurchase on the same day of a position held from the previous day to be treated as a
day trade. The amendments treat the sale of an existing position as a liquidation and the
subsequent repurchase as the establishment of a new position not subject to the rules
affecting day trades. Similarly, if a short position is carried overnight, the purchase to
close the short position and subsequent new sale would not be considered a day trade.

For a more detailed description of the amendments, as well as specific examples of
certain margin calculations under the amendments, members should review the attached
SEC Approval Order.

Endnotes

1 See Securities Exchange Act Release No. 44009 (February 27, 2001), 66 FR
13608 (March 6, 2001) (File No. SR-NASD-00-03) (“SEC Approval Order”).

2 The SEC issued a joint approval order for the NASD’s and NYSE’s proposed
rule changes relating to day-trading margin requirements. The NYSE rule filing number
is SR-NYSE-99-47.

3 NASD Rule 2520 and NYSE Rule 431, the margin provisions for the NASD
and the NYSE, respectively, are substantially similar.

4 The firm has the option to calculate day-trading margin requirements based on
either the largest open position at any given time during the day, or on the customer’s
total trading commitment during the day. If the firm chooses to base day-trading margin
requirements on the customer’s largest open position during the day, the firm must
maintain “time and tick” records documenting the sequence in which each day trade is
completed.

© 2001, National Association of Securities Dealers, Inc. (NASD). All rights reserved.
Notices to Members attempt to present information to readers in a format that is easily
understandable. However, please be aware that, in case of any misunderstanding, the
rule language prevails.


ATTACHMENT A

SR-NASD-00-03, Proposed Rule Language, as amended

Proposed new language is in {brackets}; proposed deletions are in [brackets].

2520. Margin Requirements

(a) Definitions No change.

(b) Initial Margin

For the purpose of effecting new securities transactions and commitments, the customer
shall be required to deposit margin in cash and/or securities in the account which shall
be at least the greater of:

(1) through (3) No change.

(4) equity of at least $2,000 except that cash need not be deposited in excess of the
cost of any security purchased (this equity and cost of purchase provision shall not
apply to “when distributed” securities in a cash account). {The minimum equity
requirement for a “pattern day trader” is $25,000 pursuant to paragraph (f)(8)(B)(iv)a.
of this Rule.}

Withdrawals of cash or securities may be made from any account which has a debit
balance, “short” position or commitments, provided it is in compliance with Regulation T
of the Board of Governors of the Federal Reserve System and after such withdrawal
the equity in the account is at least the greater of $2,000 {($25,000 in the case of a
“pattern day trader”)} or an amount sufficient to meet the maintenance margin
requirements of this [paragraph] {Rule}.

(c) through (f)(8)(A)(iii) No change.

(f)(8)(B) Day[-] Trading

{(i)} The term “day[-] trading” means the purchasing and selling {or the selling and
purchasing} of the same security on the same day {in a margin account except for:}

{a. a long security position held overnight and sold the next day prior to any new
purchase of the same security, or}

{b. a short security position held overnight and purchased the next day prior to any new
sale of the same security.}

{(ii)} [A “day- trader” is any customer whose trading shows a pattern of day- trading.]
{The term “pattern day trader” means any customer who executes four or more day
trades within five business days. However, if the number of day trades is 6% or less of
total trades for the five business day period, the customer will not be considered a
pattern day trader and the special requirements under paragraph (f)(8)(B)(iv) of this
Rule will not apply. In the event that the organization at which a customer seeks to open
an account or to resume day trading knows or has a reasonable basis to believe that the
customer will engage in pattern day trading, then the special requirements under
paragraph (f)(8)(B)(iv) of this Rule will apply.}

{(iii) The term “day-trading buying power” means the equity in a customer’s account at
the close of business of the previous day, less any maintenance margin requirement as
prescribed in paragraph (c) of this Rule, multiplied by four for equity securities.}

Whenever day[-] trading occurs in a customer’s margin account the {special
maintenance} margin {required for the day trades in equity securities} [to be
maintained] shall be [the margin on the “long” or “short” transaction, whichever
occurred first, as required pursuant to the other provisions of this Rule. When day-
trading occurs in the account of a “day-trader” the margin to be maintained shall be the
margin on the “long” or “short” transaction, whichever occurred first, as required by
Regulation T of the Board of Governors of the Federal Reserve System or as required
pursuant to the other provisions of this Rule, whichever amount is greater.] {25% of the
cost of all the day trades made during the day. For non-equity securities, the special
maintenance margin shall be as required pursuant to the other provisions of this Rule.
Alternatively, when two or more day trades occur on the same day in the same
customer’s account, the margin required may be computed utilizing the highest (dollar
amount) open position during that day. To utilize the highest open position computation
method, a record showing the “time and tick” of each trade must be maintained to
document the sequence in which each day trade was completed.}

{(iv) Special Requirements for Pattern Day Traders}

{a. Minimum Equity Requirement for Pattern Day Traders - The minimum equity
required for the accounts of customers deemed to be pattern day traders shall be
$25,000. This minimum equity must be deposited in the account before such customer
may continue day trading and must be maintained in the customer’s account at all
times.}

{b. Pattern day traders cannot trade in excess of their day-trading buying power as
defined in paragraph (f)(8)(B)(iii) above. In the event a pattern day trader exceeds its
day-trading buying power, which creates a special maintenance margin deficiency, the
following actions will be taken by the member:}

{1. The account will be margined based on the cost of all the day trades made
during the day,}

{2. The customer’s day-trading buying power will be limited to the equity in the
customer’s account at the close of business of the previous day, less the
maintenance margin required in paragraph (c) of this Rule, multiplied by two for
equity securities, and}

{3. “time and tick” (i.e., calculating margin using each trade in the sequence that
it is executed, using the highest open position during the day) may not be used.}

{c. Pattern day traders who fail to meet their special maintenance margin calls as
required within five business days from the date the margin deficiency occurs will be
permitted to execute transactions only on a cash available basis for 90 days or until the
special maintenance margin call is met.}

{d. Pattern day traders are restricted from using the guaranteed account provision
pursuant to paragraph (f)(4) of this Rule for meeting the requirements of paragraph
(f)(8)(B).}

{e. Funds deposited into a pattern day trader’s account to meet the minimum equity or
maintenance margin requirements of paragraph (f)(8)(B) of this Rule cannot be
withdrawn for a minimum of two business days following the close of business on the
day of deposit.}

(C) When the equity in a customer’s account, after giving consideration to the other
provisions of this [paragraph (c)] {Rule}, is not sufficient to meet the requirements of
[subparagraph (i) or (ii) hereof] {paragraph (f)(8)(A) or (B)}, additional cash or
securities must be received into the account to meet any deficiency within [seven] {five}
business days of the trade date.

{In addition, on the sixth business day only, members are required to deduct from Net
Capital the amount of unmet maintenance margin calls pursuant to SEC Rule 15c3-1.}

(f)(9) and (f)(10) No change.

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