FINANCIAL HOUSEKEEPING | Learn the basics about IRAs
While traditional and Roth individual retirement accounts have been around for years, most consumers still do not use them.
With the recently signed Pension Protection Act of 2006 putting even more of the burden of paying for retirement on individuals, finding ways to save for retirement is that much more essential.
That’s why the American Savings Education Council partnered with the Employee Benefit Research Institute to produce a brochure called “Why Open an IRA?” The brochure describes and compares the various types of IRAs and helps explain why an investor might want these accounts in addition to their 401(k) or other retirement plan.
The brochure is available at www.choosetosave.org/brochures/pdf/whyopenanira.pdf.
SHORT COURSE | Short sales
Investors use short sales to profit from falling stock prices. Typically, an investor borrows stock from a brokerage and immediately sells the shares on the market. If the price drops, the investor repurchases the stock – a move known as a short cover – returns the shares to the brokerage (plus interest) and pockets the difference.
Example: XYZ stock trades at $10 per share. A short-seller borrows and sells 100 shares, netting $1,000. XYZ’s stock price falls to $5; the short-seller now buys 100 shares on the open market for $500, returns the shares to the broker (plus interest and commission) and walks away with a profit of roughly $500.
If, however, the stock works against the investor and the share price jumps to $15, the cost of executing the short cover rises to $1,500. Before interest and fees, the investor loses $500.
