investment

Real Estate Valuation: What You Should Know

If you are a mortgage lender or a property buyer or seller, be sure to know about real estate valuation. The three basic approaches to property appraisal are sales comparison, cost and income capitalization. Property owning benefits are economic and social trends, government controls, and environmental considerations. For a general understanding, watch this video.

Reviewed by Julius MansaReviewed by Julius Mansa

Real estate valuation takes into account many hard facts about a property such as its location, lot size, amenities, and floor plan. Another factor is more difficult to measure, and that is the present value of future benefits that the owner of the property will incur.

This concept is related to the relatively long time commitment and high price of buying real estate. Homeownership is not a casual or short-term commitment for most.

An accurate valuation is important not only to buyers and sellers but to banks that finance the purchases, property insurance companies that protect them, and local governments that tax their owners.

Key Takeaways

• Real estate valuation takes into account location, lot size, floor plan, and amenities, among other qualities.
• As in all transactions, supply and demand is a factor.
• Commercial real estate valuation also relies on an estimate of the present value of future benefits.

Valuation Concepts

A property’s value is defined as the present worth of future benefits arising from the ownership of the property.

Unlike many consumer goods that are quickly used, the benefits of real property are generally realized over a long period of time. An estimate of a property’s value must take into consideration economic and social trends, as well as governmental controls or regulations and environmental conditions that may influence the four elements of value:

• Demand: The desire or need for ownership supported by the financial means to satisfy the desire
• Utility: The property’s ability to satisfy a future owners’ desires and needs
• Scarcity: The finite supply of competing properties
• Transferability: the ease with which ownership rights can be transferred to a new owner

Value Versus Cost and Price

Value is not necessarily equal to cost or price.

Cost refers to actual expenditures related to the creation and marketing of a product, such as materials, labor, and advertising.

Price, on the other hand, is the amount that someone is willing to pay for the product.

While cost and price can affect value, they do not determine value. The sales price of a house might be $150,000, but the value could be significantly higher or lower. For instance, if a new owner finds a serious flaw in the house, such as a faulty foundation, the value of the house could be lower than the price.

Market Value

An appraisal is an opinion or estimate regarding the value of a particular property as of a specific date.

Appraisal reports are used by businesses, government agencies, individuals, investors, and mortgage companies when making decisions regarding real estate transactions. The goal of an appraisal is to determine a property’s market value, or the probable price that the property will bring in a competitive and open market.

Market price, the price at which property actually sells, may not always represent the market value. For example, if a seller is under duress because of the threat of foreclosure, or if a private sale is held, the property may sell below its market value. If a bidding war breaks out over a property, emotion rather than value may carry the day.

Appraisal Methods

An accurate appraisal depends on the methodical collection of data. Specific data on the property and general data related to region, city, and neighborhood wherein the property is located, are collected and analyzed to arrive at a value.

Appraisals use three basic approaches to determine a property’s value.

Method 1: Sales Comparison Approach

The sales comparison approach is commonly used in valuing single-family homes and land. Sometimes called the market data approach, it is an estimate of value derived from a comparison with recently sold properties that have similar characteristics.

These similar properties are referred to as comparables. To provide a valid comparison, each must:

• Be as similar to the subject property as possible
• Have been sold within the last year in an open, competitive market
• Have been sold under typical market conditions

At least three or four comparables should be used in the appraisal process. The most important factors to consider are size, comparable features, and – perhaps most of all – location, which can have a tremendous effect on a property’s market value.

Comparables’ Qualities

Since no two properties are exactly alike, adjustments to the comparables’ sales prices will be made to account for dissimilar features and other factors that affect value, including:

• Age and condition of buildings
• Date of sale, if economic changes occur between the date of sale of a comparable and the date of the appraisal
• Terms and conditions of sale, such as if a property’s seller was under duress or if a property was sold between relatives at a discounted price
• Location, since similar properties might differ in price from neighborhood to neighborhood
• Physical features such as lot size, landscaping, type and quality of construction, number and type of rooms, square feet of living space, hardwood floors, a garage, kitchen upgrades, a fireplace, a pool, and central air.

The market value estimate of the property will fall within the range formed by the adjusted sales prices of the comparables. Since some of the adjustments made to the sales prices of the comparables will be more subjective than others, weighted consideration is typically given to those comparables that have the least amount of adjustment.

Method 2: Cost Approach

The cost approach can be used to estimate the value of properties that have been improved by the addition of one or more buildings. This method involves separate estimates of value for the building(s) and the land, taking into consideration depreciation. The estimates are added together to calculate the value of the entire improved property.

The cost approach starts with the assumption that a reasonable buyer would not pay more for an existing improved property than it would cost to buy a comparable lot and construct a comparable building. This approach is useful when the property being appraised is a type that is not frequently sold and does not generate income, such as schools, churches, hospitals, and government buildings.

Building costs can be estimated in several ways, including the square-foot method where the cost per square foot of a recently built comparable is multiplied by the number of square feet in the subject building; the unit-in-place method, where costs are estimated based on the construction cost per unit of measure of the individual building components, including labor and materials; and the quantity-survey method, which estimates the quantities of raw materials that will be needed to replace the subject building, along with the current price of the materials and associated installation costs.

Depreciation

For appraisal purposes, depreciation refers to any condition that negatively affects the value of an improvement to real property. It takes into consideration:

• Physical deterioration, including curable deterioration such as painting and roof replacement, and incurable deterioration, such as structural problems
• Functional obsolescence, which refers to physical or design features that are no longer considered desirable by property owners, such as outdated appliances, dated fixtures, or homes with four bedrooms but only one bath
• Economic obsolescence caused by external factors such as being located close to a noisy airport or a polluting factory.

Methodology

• Estimate the value of the land as if it were vacant and available to be put to its highest and best use, using the sales comparison approach since land cannot be depreciated.
• Estimate the current cost of constructing the building(s) and site improvements.
• Estimate the amount of depreciation of the improvements resulting from deterioration, functional obsolescence, or economic obsolescence.
• Deduct the depreciation from the estimated construction costs.
• Add the estimated value of the land to the depreciated cost of the building(s) and site improvements to determine the total property value.

Method 3: Income Capitalization Approach

Often called simply the income approach, this method is relevant only for valuing property for investors seeking a return from the use of a property.

The income approach is based on the relationship between the rate of return an investor requires and the net income that a property produces. It is used to estimate the value of income-producing properties such as apartment complexes, office buildings, and shopping centers.

Using the income capitalization approach can be fairly straightforward when the subject property is expected to generate future income and when its expenses are predictable and steady.

Direct Capitalization

Appraisers will perform the following steps when using the direct capitalization approach:

• Estimate the annual potential gross income.
• Take into consideration vacancy and rent collection losses to determine the effective gross income.
• Deduct annual operating expenses to calculate the annual net operating income.
• Estimate the price that a typical investor would pay for the income produced by the particular type and class of property. This is accomplished by estimating the rate of return, or capitalization rate.
• Apply the capitalization rate to the property’s annual net operating income to form an estimate of the property’s value.

Gross Income Multipliers

The gross income multiplier (GIM) method can be used to appraise properties that are typically not purchased as income properties but that could yield rental income, such as one- and two-family homes. The GRM method relates the sales price of a property to its expected rental income.

For residential properties, the gross monthly income is typically used. For commercial and industrial properties, the gross annual income would be used.

The gross income multiplier method can be calculated as follows:

Sales Price ÷ Rental Income = Gross Income Multiplier

Recent sales and rental data from at least three similar properties can be used to establish an accurate GIM. The GIM can then be applied to the estimated fair market rental of the subject property to determine its market value, which can be calculated as follows:

Rental Income x GIM = Estimated Market Value

What Is the Present Value of Future Benefits?

The present value of future benefits is a key component in many property valuations, particularly when it relates to income-producing commercial property.

The value of a commercial property depends in part on its ability to provide future benefits, such as rental income derived from a storefront. An estimate of the present value of those benefits is added to all of the other factors being evaluated, such as the building’s square footage and location.

What’s the Difference Between an Appraisal and a Valuation?

An appraisal is an opinion of the approximate market value of a property. A real estate agent might offer an appraisal, based on professional experience. It usually is offered for free to a prospective client.

A valuation is an analysis of the market value of a property, delivered in writing, usually for a fee.

What Kind of Credentials Does an Appraiser Need?

Credentials required for an appraiser vary by state. Many states require a certain number of hours of experience and set minimum educational requirements for certification or licensing as a professional appraiser.

The Bottom Line

Accurate real estate valuation is important to mortgage lenders, investors, insurers and buyers, and sellers of real property. While appraisals are generally performed by skilled professionals, anyone involved in a real transaction benefits from a basic understanding of the different methods of real estate valuation.

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A stagnant economy and high inflation are a killer combo

Fact checked by Vikki VelasquezFact checked by Vikki Velasquez

Recession appears to be knocking on the door again. Most economists accept that a downturn is coming following a period of interest rate increases, persistently high inflation, stock market volatility, and muted economic growth. Opinions vary on how savage it might be, however. Some claim that a soft, brief recession is in store. Others fear that we could be in for a much harder time.

One topic that’s been making the rounds lately is the prospect that we could be heading toward a period of stagflation. This has only happened once before in the United States, back in the 1970s, and it isn’t a pleasant experience.

Key Takeaways

• Stagflation is a stagnant economy combined with high inflation.
• It’s a killer combination that can result in an economic downturn in which bills and the cost of living keep rising.
• These types of economic crises are often caused by big supply shocks and easy monetary policy. They last longer than “regular” recessions because there’s no definitive cure.
• Interest rates are normally cut to stimulate economic activity when a recession strikes but
  central banks can’t easily do that when inflation is soaring.
• Some economists fear that the U.S. economy is heading for stagflation for the first time since the 1970s.

What Is Stagflation?

Stagflation is a word that implies a combination of “stagnant” and “inflation.” It describes a period of low to nonexistent economic growth coupled with rapidly rising prices.

The Difference Between Stagflation and Recession 

A recession is generally said to be in motion when there have been two consecutive quarters of negative economic growth. Stagflation is much more open to interpretation because it’s rarer.

A stagnant economy isn’t necessarily one that’s in a recession. The term “stagnant” implies sluggishness and a lack of activity that could mean either a full-blown downturn or just very weak growth. The level of inflation isn’t defined either, but we can assume that it has to be at least above the 2% threshold set by most central banks in advanced economies.

Two more key differences are time and frequency. Recessions are considered a normal part of the economic cycle. They happen quite often and historically last just less than a year. Stagflation is uncommon and tends to stick around. These types of economic crises are difficult to defeat because the traditional play of lowering borrowing rates to stimulate growth is taken off the table.

High inflation is normally associated with economic growth. It can be culled by hiking interest rates. Stagflation is harder to tame.

What Causes Stagflation?

It’s generally agreed that the main cause of stagflation is a major supply shock. Things tend to get off-kilter when the supply of food, oil, or something else that’s essential is disrupted and no longer able to meet demand. The situation is often made worse by poor economic policies.

Supply shocks lead prices to rise, hurting businesses, consumer finances, and economic growth. Central banks respond as they normally do to economic turmoil by making sure money is cheap to borrow so they essentially feed the flames of inflation, stimulating demand and pushing prices up further.

Note

The term “stagflation” was first used in 1965 by British politician Iain Macleod.

History of Stagflation

The U.S. has only experienced a serious case of stagflation once in the 1970s when the supply of oil tailed off drastically and prices consequently rocketed. This occurred first because of an embargo stemming from a war between Israel and the Arab states and later as a result of the Islamic revolution in Iran.

These events caused inflation to spiral out of control and threw the economy into disarray, along with easy monetary policy that the American central bank, the Federal Reserve, pursued to lift employment. Very high interest rates and a nasty recession were necessary to restore order and the stock market got crushed.

Will Stagflation Return in 2024?

Some fear that a similar situation could unfold again in 2024. Inflation is unusually high and the economy isn’t firing on all cylinders. A combination of unique, random factors is largely to blame.

The COVID-19 pandemic led to a lockdown and a halt in production followed by surging demand when restrictions were lifted. Then Russia invaded Ukraine, causing yet more supply chain issues and leading oil prices to spike. Each of these unlikely, destabilizing events occurred when interest rates were historically low and money was extremely cheap to borrow.

The 2024 economy got off to a bit of a limping start, growing at 1.6% compared to 3% in 2023. Business investment and consumer spending grew about 3%, however, and these are powerful economic components. Stagnation is becoming less of a threat.

Note

Other factors that contribute to stagflation include high debt, protectionist trade policies, an aging population, geopolitical tensions, climate change, and cyber warfare. Some of these aren’t going away so stagflation could continue to threaten.

The 2024 economy is not technically in a recession. Many economists agree, however, that higher unemployment could rear its head again and become a reality as loftier costs to service debt tempt companies to lay off employees. Stagflation can result when a lot of people are out of work and sluggish economic growth with high inflation combine.

Economist Nouriel Roubini is convinced that the Federal Reserve and other central banks’ attempts to curb inflation will lead to a hard landing and a grueling stagflationary debt crisis. His opinion isn’t shared by everyone, however. Stanford economist John Cochrane is hopeful that inflation likely will go away and the risk of stagflation will be averted.

A lot depends on the effectiveness of interest rate rises curtailing demand and whether major supply shocks can be ironed out quickly. The U.S. and global economies could face more than just a regular recession if inflation doesn’t ease.

Warning

Central banks ease monetary conditions when the economy is heading toward recession. They can’t do that when inflation is high, however, and that’s potentially worrying.

Why Is Stagflation Bad for the Economy?  

Stagflation is a combination of three negatives: slow economic growth, higher-than-normal unemployment, and expensive costs of living.

Interest rates are typically cut to get companies hiring again and the economy back up and running. but that action can be dangerous when inflation is soaring. We’re left with people and companies strapped for cash at a time when higher prices to service their debts and obligatory purchases cost more and more each week or month.

This isn’t just an extremely uncomfortable environment to live in but also quite tricky for governments to fix. Stagflation can drag on for years with no easy cure, causing heavy damage to the economy.  

Important

Stagflation can make a regular recession seem like a walk in the park. Prices rise rather than stay flat or fall and the tools normally used to fix the economy are ineffective. This discomfort may last for a long time.

The consequences of stagflation can be catastrophic. As Roubini points out, private and public debts are much higher than they were in the past, accounting for about 350% of global gross domestic product (GDP). This is changing and a storm is brewing with higher borrowing costs threatening to push leveraged households, companies, financial institutions, and even governments into bankruptcy and default.

We could find ourselves in an economic crisis like no other if events pan out as Roubini envisions with 1970s-style stagflation potentially being accompanied by a debt meltdown similar to the 2008 Great Recession.

Is Stagflation Worse Than a Recession?

Yes. Stagflation is basically like a recession with the added headache of rising prices and costs to service debt. There’s no definitive cure so it’s harder to defeat and it can last a long time.

Is It a Good Idea to Buy a House During Stagflation?

It could make sense to buy now rather than wait if prices continue to rise but lackluster economic growth might also weigh on house prices while the high interest rates necessary to combat inflation will mean less favorable borrowing terms. A lot depends on individual circumstances, what rate you’re offered, and how long peak inflation persists.

What Investments Perform Best During Stagflation?

Not many traditional asset classes fare well in this kind of environment. The best performers would probably be those with inflation-hedging characteristics such as inflation-indexed bonds, gold, and possibly real estate.

The Bottom Line

Many of us may have experienced what living in a stagnant economy is like but will be unfamiliar with stagflation. Judging by its criteria and accounts from the 1970s, everyone would be better off if it remained history.

Imagine living in an economic downturn where people are losing their jobs while bills and the cost of living keep on rising. Stagnant growth and high inflation are a killer combo that can do great damage to an economy and leave scars for decades to come.

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Everything You Need to Know About Payday Loans

In this video, you’ll learn about payday loans. We teach you what a payday loan is and how they work. See if a short-term borrowing situation could be beneficial in your situation while also better understanding the dangers of taking out a payday loan. Our video walks you through what payday loans are and understanding if payday loans are fixed or variable and dif they are secured or unsecured. We teach you how to obtain a payday loan and if payday loan debt can be forgiven.

Reviewed by Charlene RhinehartReviewed by Charlene Rhinehart

Payday loans, also known as cash advances, are short-term, low-balance, high-interest loans typically at usury rates. They are so named because of a tendency for the funds to be borrowed on a postdated check or account withdrawal authorization effective on the borrower’s upcoming payday.

These loans are designed to be quick and generally easy to qualify for if the applicant has a job, a valid form of identification, a checking account, and is age 18 or older.

They are intended to help consumers get some quick cash to hold them over until their next paycheck, hence the name “payday loan.” Payday loans are also called cash advance loans, deferred deposit loans, postdated check loans, or check advance loans.

Key Takeaways

• The basic requirements for a payday loan are a source of income, a checking account, and valid identification. Borrowers must be at least 18 years old.
• The application for a payday loan can be approved within minutes.
• Payday loans have extremely high interest rates that catch many people in a spiral of rising debt.
• Recent Consumer Financial Protection Bureau (CFPB) rulemaking removed one key provision of the original 2017 payday lending rule and left in place another.

Basic Requirements for Payday Loans

According to the U.S. government’s Consumer Financial Protection Bureau (CFPB), to qualify for a loan, most payday lenders only require that borrowers:

• Be at least 18 years old
• Have an active checking account
• Provide some proof of income as well as valid identification

The loan can be approved in as few as 15 minutes. In most circumstances, the borrower writes a check for the loan amount plus a lending fee, and the lender holds onto the check until a predetermined due date.

Unlike personal loans, payday loans are intended to last for just a few weeks. When the loan comes due, the borrower either pays off the loan or allows the lender to cash the postdated check or otherwise make a withdrawal from the borrower’s account.

Recent CFPB Rulemaking

The CFPB issued a final rule on July 7, 2020, that removed a requirement of a 2017 Obama administration rule mandating that payday lenders assess a borrower’s ability to repay a loan and left in place an Obama administration requirement that limits repeated attempts by payday lenders to collect from a borrower’s bank account.

Leading up to that July 7 rule, the then-Trump administration issued proposed rules in February 2019 to revoke the mandatory underwriting provision of the 2017 rule and to delay the Aug. 19, 2019, implementation of that rule, followed by a June 6, 2019, final rule delaying the August 2019 compliance date.

The Risk of Payday Loans

Many borrowers run into financial trouble with these kinds of loans when they can’t pay them off as they first come due. Each time the borrower extends the loan, more fees are tacked on. Payday lenders charge a fee of $10 to $30 for every $100 borrowed, according to the CFPB. A $15 fee works out to about 400% annually.

Payday loans are accessible to consumers with poor credit and usually do not require a credit check. About 12 million Americans use payday loans each year, and most of them do not have access to a credit card or savings account, according to the Pew Charitable Trusts.

Important

Payday loans are risky, often leading the borrower into much worse financial condition down the road. They are banned in many states.

Payday Loan Interest Rates

Loan requirements should not be the only consideration for people thinking about a payday loan. In terms of annual percentage rates, it is not uncommon for payday loans to exceed 500% or even 1,000%. Even though business models and regulations limit the size and duration of payday loans, these types of loans are still an expensive alternative and should be undertaken with care.

Because of the high interest rates, payday loans are the most expensive way to borrow money. Some states have laws regulating how much payday lenders can lend and how much they can charge for loans, while other states, like New York, ban the practice of payday lending altogether. In those states where the practice is banned, lenders often get around the regulations by partnering with banks in other states.

Members of the military have additional protection from predatory interest rates. Under the Military Lending Act, payday and other consumer loan interest rates are capped at 36%. This interest rate is known as the Military Annual Percentage Rate (MAPR). This rate is independent of other limitations set by individual states.

Payday Loan Amounts

Qualifying loan amounts vary depending on the borrower’s income and the payday lender, although most states have laws establishing maximum payday loan amounts. Some states even limit the ability of borrowers to have multiple outstanding payday loans in an attempt to keep consumers from borrowing large amounts at extremely high interest rates. Loan amounts can vary from $50 to $1,000, depending on state law.

Frequently Asked Questions (FAQs)

Are Payday Loans Illegal?

Payday loans are illegal in 18 states—Arizona, Arkansas, Colorado, Connecticut, Georgia, Maryland, Massachusetts, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, South Dakota, Vermont, and West Virginia—and the District of Columbia. Rates are capped in many other states.

Can Payday Loans Affect My Credit?

Payday loans are not reported to any of the three major credit bureaus, so they will not lower or raise your credit score directly. However, if you fail to repay your loan, the lender can send your loan to collections. The collections agency may report the debt to the credit agency, which could lower your score.

Is There a Cap on How High Payday Loan Interest Rates Can Be?

Some states do limit the amount of interest that payday lenders can charge, but in states without restriction, rates can go as high as 1,000%.

The Bottom Line

Payday loans are available to anyone with a source of income, valid identification, and a checking account. However, these loans can quickly escalate, charging predatory lending rates that sink borrowers deeper in debt. Be wary when considering a payday loan, and make sure that you can repay the loan in a timely manner.

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Rise of the Robo Advisors

The financial advisory business is facing an impending transformational change. Gen X is now poised to become the US’ wealthiest demographic once boomers and their parents pass on an estimated 24 trillion dollars. This means the younger, soon-to-be wealthiest Americans will need financial advisors, and they’re much more likely to seek that help from algorithm-based robo-advisors than humans.

What does that mean for the financial advice market?
 

Fact checked by Pete RathburnReviewed by Ebony HowardFact checked by Pete RathburnReviewed by Ebony Howard

Financial analysts produce financial plans, projections, and analytical reports for use in investment decisions by companies, public and private organizations, and individuals. Depending on the type of analyst job, the duties can vary quite a bit.

Some financial analysts work in the securities industry analyzing stocks, bonds, and other securities. This work might be for banks, brokerages, money management firms, and other organizations. Analysts can also work in federal agencies such as the Securities and Exchange Commission (SEC). These financial analysts typically develop expertise in a narrow category of stocks or bonds, such as Canadian corporate bonds or technology stocks, for example.

Other financial analysts work for large corporations, analyzing internal financial data and producing financial plans, revenue expense projections, and recommendations to inform budget and investment decisions by company executives. Nonprofit organizations and government bodies also employ financial analysts in this type of work.

Key Takeaways

• A financial analyst culls data to help companies make business decisions or investors take action, such as to buy or sell a stock or other security.
• They weigh macroeconomic and microeconomic issues, and company fundamentals to make predictions about firms, sectors, and industries.
• A bachelor’s degree in something math or finance-related is a given and moving up to the senior level means getting certifications and/or an MBA.
• A recent college graduate can expect to start at the junior level, under the supervision of a more senior analyst.
• Someone with a few years of experience, several key certifications, and an MBA from a prestigious university can move up to a senior role.

Career Paths

A recent bachelor’s degree graduate seeking to become a financial analyst can expect to begin in a junior position under the guidance of a senior analyst. After several years of experience, many junior financial analysts consider returning to graduate school for advanced degrees.

While junior analysts are not barred from advancement, continuing progression to positions with greater responsibility usually necessitates returning to school. A graduate with a master’s degree can expect to begin work as a senior financial analyst or rise to the position very quickly.

Important

An advanced financial analyst position generally requires an MBA degree with an appropriate subject focus or a master’s degree in finance.

With greater experience and expertise, a senior financial analyst can continue into a supervisory position. A senior analyst in the securities industry often moves up to become a portfolio manager or a fund manager overseeing a team of senior analysts.

There may also be an opportunity to enter a senior management role. In the corporate world, senior analysts can become treasury managers supervising working groups within their departments. A standout performer may rise through the ranks to become a chief financial officer (CFO) or chief investment officer (CIO) responsible for all of the company’s financial activities.

Education Requirements

While a bachelor’s degree is the minimum requirement for an entry-level financial analyst position, data collected by the U.S. Bureau of Labor Statistics (BLS) shows that a master’s degree is generally preferred for permanent and advanced positions in the field.

$99,890

The median annual income for financial analysts of all experience levels, according to May 2023 data (the latest available) from the U.S. Bureau of Labor Statistics (BLS).

A variety of undergraduate subjects are generally accepted by employers, including business fields such as finance, accounting, and economics. Due to the importance of advanced quantitative skills in this field, bachelor’s degrees in statistics, mathematics, engineering, and physics are not uncommon among financial analysts; however, applicants with these degrees can benefit from business coursework, especially in accounting and finance.

Other Qualifications and Skills

Some financial analysts must obtain an appropriate license from the Financial Industry Regulatory Authority (FINRA), which is responsible for writing and enforcing rules for securities firms and brokers operating in the United States.

Licensure generally requires sponsorship from the employing firm, so most financial analysts only obtain a license after starting a job; however, long-term employment may be contingent on successful licensure.

Many employers expect financial analysts to pursue certification in the field. The preeminent certification in the field is the Chartered Financial Analyst (CFA) designation awarded by the CFA Institute.

It is available to financial analysts with at least three full years of qualifying work experience. Thus, it is generally considered a qualification for advancement to more senior financial analyst positions. Qualifying for the designation also requires a bachelor’s degree and a passing score on a series of three exams administered by the CFA Institute.

Note

The hiring of financial analysts is expected to grow by 8% between 2022 and 2032, slightly faster than the average for all occupations.

Financial analysts are often expected to present and explain their work to clients and superiors, so strong communication and presentation skills are crucial. Analytical and critical thinking skills are essential in evaluating alternatives and settling on a final recommendation.

In addition to knowledge of statistics, mathematics, and finance, experience using software tools associated with these disciplines is valuable. While it’s not uncommon for employers to use highly specialized technology and proprietary tools that aren’t available outside the firm, learning and relying on complicated quantitative software provides skills that translate well to other systems.

What Are the Main Skills that a Financial Analyst Needs?

The main skills that a financial analyst needs include critical thinking, analytical skills, presentation skills, an understanding of financial and economic terms, financial modeling skills, understanding of financial regulations, and being personable.

How Do You Pursue a Career As a Financial Analyst?

To pursue a career as a financial analyst one needs to obtain a bachelor’s degree. A degree in finance, economics, business management, statistics, or related fields is beneficial but not a requirement. An internship during college years will help secure a full-time financial analyst position. After some years of experience, further education may be required, such as an MBA or CFA qualification.

Are Financial Analysts Rich?

In general, financial analysts are well paid which can lead to them becoming rich. The average salary for a financial analyst in 2023 (the latest data available) was $99,890. Depending on the job, the firm, location, and the years of experience, the salary can be much higher and continues to grow over time.

The Bottom Line

A job as a financial analyst can be a demanding and also lucrative one. There are many career paths financial analysts can choose, from working in investment banks to working in nonprofit organizations.

The majority of financial analyst careers will require a bachelor’s degree with on-the-job training to learn the complexities of the job and industry. Depending on the specific path an individual chooses, further requirements may be needed, such as securities licenses or other degrees.

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Reviewed by Thomas BrockReviewed by Thomas Brock

A car title loan is a short-term loan in which the borrower’s car is used as collateral against the debt. Borrowers are typically consumers who do not qualify for other financing options.

If you live in a state that permits car title loans, here’s how getting one works. The borrower brings the vehicle and necessary paperwork to the lender. Although some title loan applications are available online, lenders still need to verify the condition of the vehicle—and the completeness of the paperwork—prior to releasing the funds.

Unlike with a car loan, the lender keeps the title to the vehicle, places a lien on it, and gives the money to the borrower.

The loan limit is generally 25% to 50% of the car’s cash value. The borrower repays the loan, plus fees and interest, within the time period allowed (usually 30 days) and reclaims the title, lien-free.

Key Takeaways

• Car title loans are short-term secured loans that use the borrower’s car as their collateral.
• Car title loans often involve high-interest rates and are geared toward borrowers with poor credit ratings.
• Not all states allow car title loans.
• To obtain a car title loan, you’ll need to provide documentation verifying your identity, that you own your vehicle, and that you have earned income.
• To reduce the lender’s risk, you may have to install a GPS tracker on the car to assist in potential repossession.

Documents You’ll Need

To obtain a car title loan, also called a pink slip loan, in most cases a borrower must own the vehicle outright. There may be no liens against the title. Lenders also require certain paperwork, including any or all of the following:

• Original vehicle title showing sole ownership
• Government-issued identification matching the name on the title
• Utility bill or other proof of residency matching the name on the title
• Current vehicle registration
• Proof of vehicle insurance
• Recent pay stubs or other proof of ability to repay the loan
• Names, phone numbers, and addresses of at least two valid references
• Working copies of the vehicle’s keys

Some lenders also require a GPS tracking device to be attached to the car, in case the borrower defaults and the lender wins the right to repossess the car. Some of these devices are designed to permit the lender to disable the car remotely.

You do not need good credit to get a title loan. In fact, most title-loan lenders won’t check your credit at all, since the loan depends entirely on the resale value of the vehicle. Likewise, you do not need to be employed to qualify for a title loan.

Rates and Fees

Car title loans are considerably more expensive than traditional bank loans. Interest rates vary, but in states where the interest rate is not capped, it is generally set at 25% per month, or 300% annually. This means that a consumer who borrows $1,000 will need to repay $1,250 at the end of the 30 days to avoid going into default.

Most lenders charge a lien fee. In states where title lending is not regulated, some lenders also charge origination fees, document fees, key fees, processing fees, or other fees. The fees add up quickly, and can amount to an additional $25 (or more) on top of the loan and interest charges. Be sure to add up all the fees when figuring the total cost of the loan.

Junk Fees

In March of 2023 the Consumer Financial Protection Bureau (CFPB) issued a supervisory report detailing how illegal junk fees related to property retrieval, vehicle repossession, and similar processes that are not allowed in borrowers’ loan agreements exist in the title loan market.

Example of a Title Loan

Say that you have recently lost your job and you are now struggling to make rent. As a short-term solution, you decide to borrow money using a car title loan against your vehicle, which has a current market value of $2,500. The loan provider agrees to extend them a car title loan for $1,250.

In the application process, you need to provide proof of title (that you own the car) as well as additional documentation. The interest rate was advertised as being 20% for the 30-day duration of the loan, but you made the mistake of assuming that the interest rate was already annualized. The true annualized interest rate (APR) was actually 240%—far more than you would have accepted knowingly.

By the end of the one-month term, you were required to repay $1,500, significantly more than the roughly $1,270 that you were expecting. Given your desperate financial situation, you were unable to find the additional $230 and was therefore forced to forfeit the title to your car.

Frequently Asked Questions (FAQs)

Do I Have to Be Employed to Get a Title Loan?

No. Most title loan lenders don’t check employment status. The only hard requirement is that you are the sole owner of the car.

Can a Title Loan Hurt My Credit Score?

A title loan doesn’t hurt or help your credit score. Title loans are a self-contained system—lenders don’t check your credit and if you default on your payment, they repossess the car and resell it, but they don’t report the default to collections agencies.

Are There Additional Fees for Title Loans?

In addition to the interest charged, some lenders may also tack on administration fees, origination fees, key fees, lien fees, and more. Read the fine print carefully before signing anything.

The Bottom Line

The best candidate for a car title loan is someone who owns a vehicle outright, understands the potentially high cost of the loan and has a reasonable expectation of having access to the cash to repay the loan before the repayment period expires. If there is no clear and realistic plan for paying off the loan, a car title loan can amount to selling the vehicle for half or less of its value.

Many title-loan borrowers renew their loans several times, making the financing much more expensive overall. So, again, the most critical consideration is ability to repay the loan on or before its due date.

Read the original article on Investopedia.

Reviewed by Akhilesh GantiReviewed by Akhilesh Ganti

Carnival Corp. (CCL) operates cruise lines in North America, Europe, Asia, and Australia. Its brands include Carnival Cruise Line, Princess Cruises, Seabourn, and Cunard. Carnival experienced a significant negative impact on its business as a result of the COVID-19 pandemic. Guest passenger operations were paused in March 2020 but bookings have recovered and have reached an all-time high in 2024.

The top shareholders of Carnival are Randall Weisenberger, David Bernstein, Stuart Subotnick, Vanguard Group, BlackRock, and State Street Corporation.

Carnival’s 12-month trailing net income (TTM) was $2.84 billion and its 12-month trailing revenue was $23.43 billion as of August 2024. The company had a market capitalization of $19.33 billion at that time. The company is dually listed, trading as Carnival Corp. (CCL) in the U.S. and as Carnival plc (CCL) on the London Stock Exchange.

Key Takeaways

• Carnival Corp. operates cruise lines in North America, Europe, Asia, and Australia.
• The company was significantly affected by the COVID-19 pandemic.
• The top individual shareholders of Carnival are Randall Weisenberger, David Bernstein, and Stuart Subotnick.
• Carnival’s top institutional shareholders are Vanguard Group, BlackRock, and State Street Corporation.
• The company’s market cap rebounded to $19.33 billion by August of 2024.

Top 3 Individual Insider Shareholders

This list reflects direct ownership. It doesn’t include indirect ownership of shares or shares that are accessible through stock options.

Important

The term “insider” refers to people in senior management positions and members of the board of directors, as well as people or entities that own more than 10% of the company’s stock. It has nothing to do with insider trading in this context.

Randall J. Weisenburger

Randall J. Weisenburger owned 1,351,750 shares of Carnival as of April 8, 2024.

Weisenburger has been a member of the board of directors of Carnival Corp and Carnival plc since 2009. He’s also a managing member of Mile26 Capital LLC, a private investment firm, a position he’s held since 2015. He was executive vice president and chief financial officer of Omnicom Group Inc. (OMC) from 1998 through 2014. Weisenburger also serves on the boards of Corsair Gaming Inc. (CRSR), MP Materials Corp. (MP), and Valero Energy Corp. (VLO).

David Bernstein

David Bernstein owned 239,421 Carnival shares as of April 8, 2024.

Bernstein has been chief financial officer of Carnival Corp since 2007. He became chief accounting officer as well in 2016. Bernstein oversees the company’s accounting, planning, insurance, tax, investor relations, and global casino operations. He’s served in several other leadership positions at Carnival, including chief financial officer of the Cunard and Seabourn operations. He held multiple financial positions at Royal Caribbean Cruises Ltd before joining Carnival. (RCL).

Stuart A. Subotnick

Stuart Subotnick held 114,208 shares of Carnival as of April 8, 2024.

Subotnick has served as an independent Carnival Corporation director since 1987 and as an independent Carnival plc director since 2003. He’s also served on the audit, compliance, and nominating and governance committees where he acts as chair. He served on the board of AboveNet, Inc. from 1997 through 2012. Subotnick took over as president and chief executive officer of Metromedia Company in Delaware in 2010 and continues to hold these positions in 2024.

Top 3 Institutional Shareholders

Institutional shareholders aren’t necessarily financial institutions. They may be shareholders that file either a 13D or a 13G form and own more than 5% of outstanding shares or those that file a 13F form and are an institutional investment manager with over $100 million in assets under management (AUM).

Institutional investors held 58.98% of Carnival’s shares as of August 2024.

Vanguard Group Inc.

Vanguard Group held 112.9 million Carnival shares representing 10.06% of shares outstanding as of March 31, 2024.

Vanguard is primarily a mutual fund and ETF management company with about $8.6 trillion in global AUM as of 2024. The Vanguard Mid-Cap Value ETF (VOE) is one of several Vanguard funds that holds Carnival shares.

BlackRock, Inc.

BlackRock held 65.92 million Carnival shares representing 5.87% of shares outstanding as of March 31, 2024.

BlackRock is one of the world’s leading asset and investment management firms with approximately $10 trillion in AUM at the end of 2023. The firm offers a wide range of mutual funds, iShares ETFs, and closed-end funds. The iShares Core S&P 500 ETF (IVV) is one of BlackRock’s largest ETFs with more than $490 billion in AUM as of Aug. 8, 2024. Approximately 0.3% of IVV’s holdings are shares of Carnival.

State Street Corp.

State Street Corporation held 38.5 million Carnival shares representing 3.43% of shares outstanding as of March 31, 2024.

State Street is a leading asset and investment management company with approximately $4.3 trillion in AUM at the close of 2024’s first quarter. The firm provides a range of financial products and services to individuals, wealth managers, institutional investors, and other clients around the world. The SPDR S&P 500 ETF Trust (SPY) is one of State Street’s largest ETFs with about $538.7 billion in assets under management as of Aug. 8, 2024.

How Did COVID-19 Affect Carnival?

Carnival suspended its operations worldwide in March 2020 after a passenger tested positive for COVID on Feb. 1. An additional 700 people on or associated with that ship then contracted the virus.

The company went into crisis-management mode that involved taking on more than $10 billion in equity financing and new debt and cutting down significantly on capital expenditures and operating expenses.

Is Carnival Financially Healthy Again?

Yahoo! Finance reported in July 2024 that Carnival’s net income has increased by almost $500 million year over year. The company reported record revenue in Q2 2024.

What Is Carnival’s Share Price?

Carnival closed at $14.77 per share on Aug. 9, 2024. Its 52-week range was $10.84 to $19.74 at that time.

The Bottom Line

Carnival Corporation is a giant in the cruise ship industry with brands that include Carnival Cruise Line, Princess Cruises, Seabourn, and Cunard. The COVID-19 pandemic hit Carnival hard but the company has fought back. Bookings hit an all-time high in 2024. The company had a market capitalization of $19.33 billion in August of that year.

Carnival’s top shareholders are Randall Weisenberger, David Bernstein, Stuart Subotnick, Vanguard Group, BlackRock, and State Street Corporation.

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Real estate depreciation can save you money at tax time

Reviewed by Erika RasureFact checked by Ryan EichlerReviewed by Erika RasureFact checked by Ryan Eichler

Real estate depreciation is a method used to deduct market value loss and the costs of buying and improving a property over its useful life from your taxes. The IRS allows you to deduct a specific amount from your taxable income every full year you own and rent a property.

Key Takeaways

• Rental property owners can use depreciation to deduct the property’s purchase price and improvement costs from their tax returns.
• Depreciation commences as soon as the property is placed in service or available to use as a rental.
• By convention, most U.S. residential rental property is typically depreciated at a rate of 3.636% each year for 27.5 years.
• Only the value of buildings can be depreciated; you cannot depreciate the land buildings are built on.

What Is Rental Property Depreciation?

When you buy a property to use as a rental—an investment property—you’ll inherit all the costs of maintaining, improving, and managing it. Owning and renting property is considered a business endeavor because you’re generating income from it. You’ll also have to include any income you generate in your taxes.

The property is an asset that helps you generate income, similar to a manufacturer and the equipment or machines they buy to produce their product. Over years of use, the value of these manufacturing machines—or your rental property—declines, which is called depreciation. So, the IRS gives you a break by assuming that your investment property will lose value over time as you rent and maintain it. It allows you to deduct those costs and loss of value by spreading it out over a period of years.

Property and large equipment also experience economic depreciation. Economic depreciation is a decrease in the value of the asset due to negative influences, such as an across-the-board drop in real estate prices.

How Rental Property Depreciation Works

There are several factors you need to consider when you’re depreciating rental property. You’ll have to know which system to use, whether the property is depreciable, when to start depreciating it, and what the tax consequences are.

Depreciable Property

According to the IRS, you can depreciate a rental property if it meets all of these requirements:

• You own the property (you are considered to be the owner even if the property is subject to a debt).
• You use the property in your business or as an income-producing activity.
• The property has a determinable useful life, meaning it wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes.
• The property is expected to last for more than one year.

Even if the property meets the above requirements, it cannot be depreciated if you placed it in service and dispose of it (or no longer use it for business use) in the same year.

Note that land isn’t considered depreciable since it never gets “used up.” In general, you cannot depreciate the costs of clearing, planting, and landscaping, as those activities are considered part of the cost of the land and not the buildings.

Starting Depreciation

You can begin taking depreciation deductions as soon as you place the property in service or when it’s ready and available to use as a rental.

Here’s an example: You buy a rental property on May 15. After working on the house for several months, you have it ready to rent on July 15, so you begin advertising online and in the local papers. You find a tenant, and the lease begins on Sept. 1. As the property was placed in service—that is, ready to be leased and occupied—on July 15, you would start to depreciate the house in July and not in September when you start to collect rent.

You can continue to depreciate the property until you have deducted your entire cost or other basis in the property or you retire it from service. This applies even if you have not fully recovered its cost or other basis. A property is retired from service when you no longer use it as an income-producing property—or if you sell or exchange it, convert it to personal use, abandon it, or if it’s destroyed.

You can continue to claim a depreciation deduction for property that’s temporarily “idle” or not in use. If you make repairs after one tenant moves out, you can continue to depreciate the property while you get it ready for the next.

Depreciation Systems

Any residential rental property placed in service after 1986 is depreciated using the Modified Accelerated Cost Recovery System (MACRS). This accounting technique spreads costs (and depreciation deductions) over 27.5 or 30 years, depending on the method used. This is the amount of time the IRS considers to be the “useful life” of a rental property.

Two methods are used to determine depreciation—the General Depreciation System (GDS) or the Alternative Depreciation System (ADS). GDS applies to most properties placed in service, and in general, you must use it unless you make an irrevocable election for ADS or the law requires you to utilize ADS.

ADS is mandated when the property:

• Nonresidential real property, residential real property
• Any property with a recovery period of 10 years or more under GDS held by an electing farming business
• and qualified improvement property held by an electing real property trade or business
• Has a qualified business use 50% of the time or less
• Has a tax-exempt use
• Is financed by tax-exempt bonds
• Is used primarily in farming

Important

In general, you’ll use GDS unless you have a reason to employ ADS.

Tax Concerns

Investing in rental property can prove to be a smart financial move. For starters, a rental property can provide a steady source of income while you build equity in the property as it (ideally) appreciates over time. There are also several tax benefits. You can often deduct your rental expenses from any rental income you earn, thereby lowering your overall tax liability.

Most rental property expenses, including mortgage insurance, property taxes, repair and maintenance expenses, home office expenses, insurance, professional services, and travel expenses related to management are all deductible in the year you spend the money.

Another key tax deduction—namely, the allowance for depreciation—works somewhat differently. Depreciation is the process used to deduct the costs of buying and improving a rental property. Rather than taking one large deduction in the year you buy (or improve) the property, depreciation distributes the deduction across the useful life of the property.

If you rent real estate, you typically report your rental income and expenses for each rental property on the appropriate line of Schedule E when you file your annual tax return. The net gain or loss then goes on your 1040 form. Depreciation is one of the expenses you’ll include on Schedule E, so the depreciation amount effectively reduces your tax liability for the year.

If you depreciate $3,599.64 and are in the 22% tax bracket, you’ll save $791.92 ($3,599.64 x 0.22) in taxes that year because it is deducted from your income.

Calculating Rental Property Depreciation

Once you know which MACRS system applies, you can determine the recovery period for the property. The recovery period using GDS is 27.5 years for residential rental property. If you’re using ADS, the recovery period for the same type of property is 30 years if it was placed in service after Dec. 31, 2017, or 40 years if placed in service before that.

Next, determine the amount that you can depreciate each year. Most residential rental property uses GDS, so we’ll focus on that calculation.

For every full year a property is in service, you would depreciate an equal amount: 3.636% each year as long as you continue to depreciate the property. If the property were in service for less than one year, you would depreciate a smaller percentage that year, depending on when it was put in service. According to the IRS Residential Rental Property GDS table, if the property was put into service in the month of: 

• January: Use 3.485%
• February: Use 3.182%
• March: Use 2.879%
• April: Use 2.576%
• May: Use 2.273%
• June: Use 1.970%
• July: Use 1.667%
• August: Use 1.364%
• September: Use 1.061%
• October: Use 0.758%
• November: Use 0.455%
• December: Use 0.152%

Every year after the first year you placed it service, you would use 3.636%.

For example, your rental house has an adjusted basis of $99,000. You put into service on July 15, so:

• You’ll depreciate 1.667% for the first year, or $1,650.33 ($99,000 x 1.667%).
• Every year after that, you’ll depreciate at a rate of 3.636%, or $3,599.64
• You can continue to depreciate it as long as the rental is in service for the entire year.

Note that this figure is essentially equivalent to taking the basis and dividing by the 27.5 recovery period: $99,000 ÷ 27.5 = $3,600. The small difference stems from the first year of partial service.

Special Considerations

Several factors determine the amount of depreciation you can deduct each year. If you’re unfamiliar with what you can include in your depreciation calculation, you should have an accountant help you. The IRS doesn’t allow you to use the amount you paid for the building and property as the basis—you’ll need to separate the basis of the building and the property.

Determining Basis

The basis of the property is the amount you paid (in cash, with a mortgage, or in some other manner) to acquire the property. Some settlement fees and closing costs, legal fees, recording fees, surveys, transfer taxes, title insurance, and any amount you agreed to pay (such as back taxes) when you purchased the property are included in the basis.

Some settlement fees and closing costs can’t be included in your basis. These include fire insurance premiums, rent for tenancy of the property before closing, and charges connected to getting or refinancing a loan, including points, mortgage insurance premiums, credit report costs, and appraisal fees.

So, imagine you purchased a home for a total of $255,375. To determine your basis, you’ll likely need to use the latest real estate tax assessment, which generally divides the property into land and building tax value. Typically, you can get this information from your county’s tax office.

If you found your basis in the house was 85% of the total value, your basis would be $217,068.75 (85% of $255,375). The land’s basis would be $38,306.25. Then, you need to figure out your adjusted basis to use for your depreciation calculation.

Determining Adjusted Basis

You may have to increase or decrease your basis for certain events that happen between the time you buy the property and the time you have it ready for rental. Examples of increases to basis include the cost of any additions or improvements that have a useful life of at least one year made before you place the property in service, money spent to restore damaged property, the cost of bringing utility services to the property, and certain legal fees.

Decreases to the basis can be from insurance payments you receive due to damage or theft, casualty loss not covered by insurance for which you took a deduction, and money you receive to grant an easement.

How Much Can You Depreciate a Rental Property?

Generally, U.S. rental properties are depreciated at a rate of 3.636% over 27.5 years.

Can Rental Depreciation Offset Ordinary Income?

Yes, but it’s best to consult a tax professional to make sure it’s in your best interest to do so.

How Do You Avoid Depreciation on a Rental Property?

You can sell it for a loss or turn it into your primary residence if you’ve owned it for five years and have lived in it for two of those years.

The Bottom Line

Depreciation can be valuable if you invest in rental properties because it allows you to spread out the cost of buying the property over decades, thereby reducing each year’s tax bill. Of course, if you depreciate property and sell it for more than its depreciated value, you’ll owe tax on that gain through the depreciation recapture tax.

Because rental property tax laws are complicated and change periodically, it’s always recommended that you work with a qualified tax accountant when establishing, operating, and selling your rental property business. That way, you can receive the most favorable tax treatment and avoid surprises at tax time.

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Fact checked by Katrina MunichielloReviewed by Somer AndersonFact checked by Katrina MunichielloReviewed by Somer Anderson

BP PLC (BP) is a British integrated oil and gas company with operations in more than 70 countries. Its upstream operations were responsible for the production of 2.3 million barrel-of-oil equivalents (BOEs) per day in 2022. It was the ninth-largest energy company in the world in terms of revenue as of 2023.

The top shareholders of BP PLC are Norges Bank, Murray Auchincloss, Pamela Daley, Morgan Stanley, State Street Corporation, and Fisher Asset Management, LLC.

BP’s ordinary shares are traded publicly on the London Stock Exchange and the Frankfurt Stock Exchange in Germany. BP American Depositary Shares (ADSs) trade publicly on the New York Stock Exchange (NYSE).

The company’s 12-month trailing revenue (TTM) was $201.589 billion as of August 2024. Its 12-month trailing net income was $22.52 billion at that time. BP’s market cap was about $92.23 billion in August 2024.

Key Takeaways

• British Petroleum, better known as BP, is a global oil company based in the United Kingdom.
• BP was the ninth-largest energy company in the world in terms of revenue as of 2023.
• It’s a British company but U.S. investors can purchase its American Depositary Shares (ADS) on major stock exchanges.
• The company is primarily owned by institutional investors.
• The top shareholders of British Petroleum are Norges Bank, Murray Auchincloss, Pamela Daley, Morgan Stanley, State Street Corporation, and Fisher Asset Management, LLC.

Top 3 Individual Insider Shareholders

This list reflects direct ownership. It doesn’t include indirect ownership of shares or shares that are accessible through stock options.

Important

The term “insider” refers to people in senior management positions and members of the board of directors, as well as people or entities that own more than 10% of the company’s stock. It has nothing to do with insider trading in this context.

Norges Bank

Norges Bank held 2,528,063 million BP shares as of March 16, 2022.

The bank isn’t legally defined as an institution for shareholding purposes. It’s the central bank of Norway and manages the Government Pension Fund Global. It maintains foreign exchange reserves. Norges Bank says that its mission is to “promote economic stability and manage substantial assets on behalf of the Norwegian people.”

Murray Auchincloss

Murray Auchincloss owned 41,040 shares of BP as of Feb. 16, 2022.

Auchincloss was appointed as BP’s chief executive officer in January 2024. He’s also served as director of the board since July 2020. Auchincloss filled several finance and management roles for Amoco beginning in 1992 and became active with BP when the two companies merged.

Pamela Daley

Pamela Daley held 3,790 BP shares as of Sept. 22, 2020.

Daley has served BP as an independent non-executive director since February 2018. She also serves as a director of BlackRock, Inc. and SecureWorks, Inc. She’s an attorney who was initially employed by General Electric Company as tax counsel beginning in 1989. Daley retired from GE at the end of 2013.

Top 3 Institutional Shareholders

Institutional investors hold over half of BP’s shares at 11.65% of the total shares outstanding as of August 2024.

Morgan Stanley

Morgan Stanley held 25.54 million shares of BP as of March 31, 2024, representing 0.93% of total shares outstanding.

Morgan Stanley is an investment bank that provides wealth management, investment banking, sales and trading, research, and investment management services. It was founded in 1935 and has a storied history with a large and varied client base.

State Street Corporation

State Street Corporation owned 21.33 million shares of BP as of March 31, 2024, representing 0.78% of total shares outstanding.

State Street is a global financial services company based in Boston, Massachusetts. The company’s investment management arm operates under the State Street Global Advisors brand, offering institutional investors a range of investment products and research and advisory services.

Fisher Asset Management, LLC

Fisher Asset Management owned approximately 20.51 million shares of BP as of March 31, 2024, representing 0,75% of total shares outstanding.

Fisher is an investment advisor that has been in business for over 40 years. It serves private clients, small- to mid-sized businesses, and institutional investors around the world. The primary business segments of the firm include personal wealth management, 401(k) services, and institutional investing.

Is BP Going Out of Business?

BP isn’t going out of business. It was the world’s ninth-largest energy company in terms of revenue in 2023. The company has suffered financially due to the associated clean-up costs of the Deepwater Horizon oil spill in 2010, however. It’s been estimated that the cost to BP for cleanup and other associated activities was approximately $60 billion.

What Is the World’s Richest Energy Company?

The world’s richest energy company by revenue is the Saudi Arabian Oil Company with a 12-month trailing revenue of $551.94 billion as of November 2023. It’s owned and controlled by the Saudi government. BP’s 12-month trailing revenue was $201.589 billion as of August 2024.

Is BP Owned by the British?

BP is a British company that’s headquartered in London, U.K. but it’s not owned by the government. It’s a publicly owned company whose shares trade on the London Stock Exchange (LSE), the Frankfurt Stock Exchange, and the New York Stock Exchange (NYSE).

The Bottom Line

BP is one of the top 10 largest oil and gas companies in the world. It took a financial hit from its oil spill in the Gulf of Mexico in 2010 but it has managed to remain a top and competitive oil and gas firm. The company’s downstream operations include oil and gas trading and distribution activities and the production and marketing of lubricants and fuels.

The top BP shareholders are Morgan Stanley, State Street Corporation, Fisher Asset Management, Norges Bank, Murray Auchincloss, and Pamela Daley. BP’s largest investors are financial institutions.

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Here’s how to avoid paying taxes and penalties

Reviewed by Eric EstevezFact checked by Vikki VelasquezReviewed by Eric EstevezFact checked by Vikki Velasquez

Even though it’s funded with after-tax dollars, a Roth 401(k) account is not immune to taxes and penalties. That’s why it’s important to know the rules surrounding withdrawals. Understanding these requirements will keep you from losing part of your retirement savings or scrambling to pay an unforeseen tax penalty. Here’s what you need to know to keep your retirement funds safe.

Key Takeaways

• Contributions and earnings in a Roth 401(k) can be withdrawn without paying taxes and penalties if you are at least 59½ and have had your account for at least five years.
• Withdrawals can be made without penalty if you become disabled.
• Rollovers allow you to avoid taxes on Roth 401(k) earnings.
• You can avoid taxes and penalties by taking a loan from your Roth 401(k) as long as you follow the repayment rules.

Roth 401(k)s: The Basics

Though not all companies with employer-sponsored retirement plans offer a Roth 401(k), they are becoming increasingly popular.

Unlike a traditional 401(k), contributions are made with after-tax dollars and are not tax-deductible. However, you don’t pay taxes on withdrawals when you retire. For 2023, you can contribute up to $22,500 per year ($23,000 in 2024), or $30,000 if you are age 50 or older ($30,500 in 2024).

Roth 401(k) Withdrawal Rules

To make a qualified withdrawal from a Roth 401(k) account, you must have been contributing to the account for at least five years and be at least 59½ years old.

Withdrawals can also be made if the account holder becomes disabled or passes away; in this case, the funds would go to the beneficiaries of the account.

The terms of Roth 401(k) accounts stipulate that required minimum distributions (RMDs) must begin by age 73, or age 70½ if you reached that age by Jan. 1, 2020. However, under the SECURE 2.0 Act of 2022, RMDs are eliminated for Roth plans starting in 2024, but you still must take RMDs for earlier years if you were required to do so.

Unlike Roth 401(k)s, Roth individual retirement accounts (IRAs) were never subject to RMDs. Because contributions to a Roth plan are made with after-tax dollars, you do not need to pay income tax on qualified distributions, though you still have to report them to the Internal Revenue Service (IRS) on Form 1099-R when filing your taxes.

Unqualified Withdrawals

If a withdrawal is made from a Roth 401(k) account that does not meet the above criteria (that is, you must be at least 59½ and the account must be at least five years old), it is considered early or unqualified. Unqualified withdrawals are subject to income taxes and a 10% IRS tax penalty on some but not necessarily all of the amount you take out.

You can withdraw a sum equivalent to the contributions from a Roth 401(k) without paying a penalty or taxes because Roth contributions are made with after-tax dollars. Any distributed earnings, though, are liable for taxes and penalties.

There is one catch, though. Early withdrawals have to be prorated between (nontaxable) contributions and (taxable) earnings. To calculate the portion of the withdrawal attributable to earnings, simply multiply the withdrawal amount by the ratio of total account earnings to account balance.

For example, if your account balance is made up of $9,000 in contributions and $1,000 in earnings, then your earnings ratio is 10% ($1,000 ÷ $10,000). In this case, a $4,000 withdrawal would include $400 in taxable earnings. This $400 would need to be included in your gross annual income reported to the IRS. There would also be a 10% tax penalty on the $400. There are no taxes or fees assessed on the $3,600.

Rolling Over Funds in a Roth 401(k)

You can avoid taxation on your earnings if your withdrawal is for a rollover. If the funds are simply moving into another retirement plan or a spouse’s plan via a direct rollover, no additional taxes are incurred.

Warning

If the rollover is not direct (the funds are distributed to the account holder rather than from one institution to another), the funds must be deposited in another Roth 401(k) or Roth IRA account within 60 days to avoid taxation.

When you do an indirect rollover, the portion of the distribution attributable to contributions cannot be transferred to another Roth 401(k) but it can be transferred into a Roth IRA. The earnings portion of the distribution can be deposited into either type of account.

Borrowing From a Roth 401(k)

Taking a loan from your account is a way to use the funds for current needs without diminishing your retirement savings. Many 401(k) plans, Roth or traditional, allow for the account holder to take out a loan of $10,000 or 50% of the account balance, whichever is greater, up to $50,000.

Loans must be repaid within five years in generally equal payments made at least quarterly. The benefit is that you are borrowing money from yourself, and all payments and interest charged go directly back into your retirement account. However, failure to repay the loan as stipulated may result in it being considered a taxable distribution. You are also often not permitted to make additional 401(k) contributions until the loan has been paid off.

Advisor Insight

Scott Bishop, CPA, PFS, CFP®

Presidio Wealth Partners, LLC, Houston, Texas

Assuming that you no longer work for your company, your account statements should indicate whether you have the five years completed, but if not, you can find out from the plan administrator. The first year the Roth 401(k) became available was 2006, and if your first contribution was before 2018, your plan is now fully qualified tax-free upon distribution.

If you are still employed and eligible for withdrawal, it’s best to roll it over to a Roth IRA. If your trades generate gains in the taxable account, you will owe annual taxes on the gains, but if you trade in a Roth IRA, all gains are tax-deferred until you have had a Roth IRA for five years. Even if you do not have a Roth IRA right now, the rollover of a qualified Roth 401(k) will be treated as regular Roth IRA contributions.

When Can I Withdraw Roth 401(k) Funds?

In general, you can begin withdrawing Roth 401(k) earnings when you are 59½ years old. There is greater leniency on withdrawal rules for Roth 401(k) contributions.

What Is the Penalty for Early Roth 401(k) Withdrawals?

If you withdraw funds from a Roth 401(k) early, you must pay taxes on the non-contribution portion of your withdrawal. In addition, the IRS assesses a 10% penalty on the non-contribution portion. There are no taxes or penalties for the contribution portion.

Do I Pay Taxes on Roth 401(k) Withdrawals?

If you withdraw earnings too early, you are subject to taxes on the earnings portion of your early withdrawal. There are no tax implications if you withdraw earnings when you are eligible to withdraw them.

How Much Can I Contribute to My Roth 401(k)?

Younger investors can contribute up to $22,500 to their Roth 401(k) in 2023 and $23,000 in 2024. Investors who are 50 or older can contribute up to $30,000 in 2023 and $30,500 in 2024.

The Bottom Line

When household bills start piling up or unexpected expenses crop up, reaching into your retirement savings may seem appealing in the short term. Retirement accounts like Roth and traditional IRAs and 401(k) plans are not designed for easy access, and there are consequences to using money in those accounts before you’re eligible to do so.

If you raid your retirement funds without knowing the rules, you risk losing part of your savings to penalties and tax payments. A Roth 401(k) account is not immune to this, despite the fact that it’s funded with after-tax dollars.

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Effects Of Currency Fluctuations On The Economy

Huge movements in a currency can dictate an economy’s fortunes. In a manner of speaking, the currency becomes the tail that wags the dog.An unduly strong currency can exert a significant drag on the underlying economy over the long term by rendering industries uncompetitive. Surprisingly, a weak currency can sometimes create more economic benefits.For example, a weaker currency stimulates exports and makes imports more expensive, thereby decreasing a nation’s trade deficit. If the domestic currency depreciates, exporters can offer goods abroad that are more competitively priced. But a stronger currency will reduce export competitiveness and make imports cheaper, causing the trade deficit to widen. The higher the value of net exports, the higher a nation’s GDP.Capital flows into dynamic economies with stable currencies. The prospect of exchange losses due to currency deprecation deters overseas investors. A devalued currency can also result in imported inflation for countries that import many goods.Investors looking to benefit from a decline in the U.S. dollar should invest in strong overseas markets. Their returns will grow from the appreciation of the foreign currency. Multinational U.S. companies that derive much of their revenues from earnings in foreign countries may be another good investment.Investors should also avoid borrowing in low-interest foreign currencies, and they should hedge currency risk through instruments like currency futures and options.

Reviewed by Robert C. KellyFact checked by Michael LoganReviewed by Robert C. KellyFact checked by Michael Logan

Currency fluctuations can have wide-ranging impacts on the economy. A natural outcome of floating exchange rates, they can affect commerce, economic growth, capital flows, inflation, interest rates, and beyond.

A currency’s exchange rate is typically determined by the strength or weakness of the underlying economy.

Key Takeaways

• Currency exchange rates can impact merchandise trade, economic growth, capital flows, inflation, and interest rates.
• Examples of large currency moves impacting financial markets include the Asian Financial Crisis and the unwinding of the Japanese yen carry trade.
• Investors can benefit from a weak greenback by investing in overseas equities; a weaker dollar can boost their returns in U.S. dollar terms.
• Investors should hedge their foreign currency risk via instruments such as futures, forwards, and options.

Far-Reaching Currency Impacts

Many people do not pay attention to exchange rates because rarely do they need to. The typical person’s daily life is conducted in their domestic currency. Exchange rates only come into focus for occasional transactions, such as foreign travel, import payments or overseas remittances.

An international traveler might harbor for a strong domestic currency because that would make travel to Europe inexpensive. But the downside is a strong currency can exert significant drag on the economy over the long term, as entire industries are rendered noncompetitive and thousands of jobs are lost. While some might prefer a strong currency, a weak currency can result in more economic benefits.

The value of the domestic currency in the foreign exchange market is a key consideration for central banks when they set monetary policy. Directly or indirectly, currency levels may play a role in the interest rate you pay on your mortgage, the returns on your investment portfolio, the price of groceries at your local supermarket, and even your job prospects.

Currency Impact on the Economy 

A currency’s level directly impacts the economy in the following ways:

Merchandise Trade

This refers to a nation’s imports and exports. In general, a weaker currency makes imports more expensive, while stimulating exports by making them cheaper for overseas customers to buy. A weak or strong currency can contribute to a nation’s trade deficit or trade surplus over time.

For example, assume you are a U.S. exporter who sells widgets at $10 each to a buyer in Europe. The exchange rate is €1=$1.25. Therefore, the cost to your European buyer is €8 per widget.

Now let’s say the dollar weakens and the exchange rate is €1=$1.35. Your buyer wants to negotiate a better price, and you can afford to give them a break while still clearing at least $10 per widget. Even if you set the new price at €7.50 per widget, which is a 6.25% discount from your buyer’s perspective, your price in dollars is $10.13 at the current exchange rate. A weak U.S. dollar allows your export business to remain competitive in international markets.

Conversely, a stronger currency can reduce export competitiveness and make imports cheaper, which can cause the trade deficit to widen further, eventually weakening the currency in a self-adjusting mechanism. But before this happens, export-dependent industries can be damaged by an unduly strong currency.

Economic Growth

The basic formula for an economy’s GDP is:

$begin{aligned} &GDP= C + I + G + (X-M)\ &textbf{where:}\ &begin{aligned} C = &text{ Consumption or consumer spending, the biggest}\ &text{ component of an economy}end{aligned}\ &I = text{Capital investment by businesses and households}\ &G = text{Government spending}\ &(X-M) = text{Exports}- text{Imports, or net exports}\ end{aligned}$​GDP=C+I+G+(X−M)where:C=​ Consumption or consumer spending, the biggest​I=Capital investment by businesses and householdsG=Government spending(X−M)=Exports−Imports, or net exports​

From this equation, it is clear that the higher the value of net exports, the higher a nation’s GDP. As discussed earlier, net exports have an inverse correlation with the strength of the domestic currency.

Capital Flows

Foreign capital tends to flow into countries that have strong governments, dynamic economies, and stable currencies. A nation needs a relatively stable currency to attract capital from foreign investors. Otherwise, the prospect of exchange-rate losses inflicted by currency depreciation may deter overseas investors.

There are two types of capital flows: foreign direct investment (FDI), in which foreign investors take stakes in existing companies or build new facilities in the recipient market; and foreign portfolio investment, in which foreign investors buy, sell and trade securities in the recipient market. FDI is a critical funding source for growing economies such as China and India.

Governments generally prefer FDI to foreign portfolio investments, because the latter is hot money that can leave the country quickly when conditions grow tough. This capital flight can be sparked by any negative event, such as a devaluation of the currency.

Inflation

A devalued currency can result in “imported” inflation for countries that are substantial importers. A sudden 20% decline in the domestic currency could result in imports costing 25% more, as a 20% decline means a 25% increase is needed to get back to the original price point.

Interest Rates

As mentioned earlier, exchange rates are a key consideration for most central banks when setting monetary policy. A strong domestic currency exerts drag on the economy, achieving the same result as a tighter monetary policy (i.e. higher interest rates). In addition, further tightening of monetary policy at a time when the domestic currency is already strong may exacerbate the problem by attracting hot money from foreign investors seeking higher yielding investments (which would further strengthen the domestic currency).

Global Impact of Currency Fluctuations

The forex market is the most actively traded market in the world, with an excess of more than $5 trillion traded daily, far exceeding global equities. Despite such enormous trading volumes, currencies usually stay off the front pages.

However, there are times when currencies move in dramatic fashion and the reverberations are felt around the world. We list below a few examples:

The Asian Financial Crisis of 1997-98

A prime example of the havoc caused by adverse currency moves is the Asian Financial Crisis, which began with the devaluation of the Thai baht in summer of 1997. The devaluation occurred after the baht came under intense speculative attack, forcing Thailand’s central bank to abandon its peg to the U.S. dollar and float the currency. This currency contagion spread to neighboring countries such as Indonesia, Malaysia, and South Korea, leading to a severe contraction in these economies as bankruptcies soared and stock markets plunged.

Japanese Yen’s Gyrations (2008 to Mid-2013)

The Japanese yen was one of the most volatile currencies between 2008 and 2013. Because of Japan’s policy of near zero-bound interest rates, traders favored the yen for carry trades, in which they borrowed yen for next to nothing and invested in higher yielding overseas assets. But as the global credit crunch intensified in 2008, the yen began appreciating sharply as panicked investors bought the currency in droves to repay yen-denominated loans.

As a result, the yen appreciated by more than 25% against the U.S. dollar in the five months to January 2009. Then in 2013, Prime Minister Shinzo Abe unveiled monetary stimulus and fiscal stimulus plans (nicknamed “Abenomics“) that led to a 16% plunge in the yen within the first five months of the year.

Euro Fears (2010-12)

Concerns that the deeply indebted nations of Greece, Portugal, Spain, and Italy would be forced out of the European Union led the euro to plunge 20% from 1.51 to the dollar in December 2009 to about 1.19 in June 2010. The euro recovered its strength over the next year, but that only proved temporary. A resurgence of EU break-up fears led to a 19% slump in the euro from May 2011 to July 2012.

How Investors Can Hedge

Invest Overseas

US-based investors who believe the greenback is weakening should invest in strong overseas markets, because their returns will be boosted by foreign currency gains.

Invest in U.S. Multinationals

The U.S. has many large multinational companies that derive a substantial part of revenues and earnings from foreign countries. Earnings of U.S. multinationals are boosted by the weaker dollar, which should translate into higher stock prices when the greenback is weak.

Refrain From Borrowing in Low-Interest Foreign Currencies

Never borrow in a foreign currency if it is liable to appreciate and you do not understand or cannot hedge the exchange risk.

Hedge Currency Risk

Adverse currency moves can significantly impact your finances, especially if you have substantial forex exposure. But there are plenty of choices to hedge currency risk, such as currency futures, currency forwards, currency options, and exchange-traded funds.

What Causes Currency Fluctuations?

At the most basic level, currency fluctuations are caused by changes in the supply and demand of a given currency. When a specific currency is in demand for whatever reason, its value relative to other currencies may rise. When it is not in demand—due to domestic economic downturns, for instance—then its value will fall relative to others.

What Is the Risk of Currency Fluctuations?

Currency fluctuations can pose all kinds of risks. The biggest and most impactful are borne by those who own significant amounts of a certain currency. Say you maintain an investment porfolio abroad. If the applicable currency declines in value, likely so will the value of the portfolio itself. Diversifying one’s investments can help mitigate this risk.

What Is the Strongest Currency in the World?

The Kuwaiti dinar is known for being one of the strongest currencies in the world, due to Kuwait’s stable economy. As of August 2024, one Kuwaiti dinar trades for $3.26 USD.

The Bottom Line

Currency moves can have a wide-ranging impact on a domestic economy and globally as well. When the greenback is weak, investors can take advantage by investing overseas or in U.S. multinationals. Because currency moves can be a potent risk when one has a large forex exposure, it may be best to hedge this risk through the many hedging instruments available.

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