Today, Maui real estate buyers and real estate buyers everywhere frequently find themselves impacted by the escrow process during the purchase of a home. In this buoyant national real estate market, both sellers and buyers benefit from the creation of escrow accounts. The use of escrow furnishes safeguards for parties entering into real estate transactions by upholding fiduciary responsibilities and rights. It helps protect sellers, buyers, and lenders against fraud.
Complex Real Estate Transactions
It may seem tempting to think of a realty purchase as a simple sales event involving only a buyer and a seller. Yet today, this type of property transfer usually affects other parties, as well. The escrow process assists both sales closings and the mortgage lending process.
In many cases, in a real estate market like Maui, many cannot afford to purchase real estate without obtaining financing. Additionally, whenever a real estate closing occurs, it proves important to ensure the satisfaction of any outstanding obligations on the part of the seller to lenders, lienholders, and tax collectors. During the escrow process, an escrow agent assumes responsibility for honoring the contractual requirements agreed upon by the parties to the transaction. Escrow helps prevent one party from defrauding another.
About Escrow
During escrow, a neutral third party holds funds for the buyer and the seller. This “escrow agent” maintains stringent fiduciary responsibilities. For example, banks frequently serve as escrow agents.
The escrow agent by definition lacks a vested interest in the outcome of the transaction. Today, a variety of sales sometimes rely upon escrow. The sales of valuable artwork, jewelry, and securities, frequently involve the creation of escrow accounts.
Escrow and Real Estate Sellers
Although provisions differ from one jurisdiction to another, typically state laws require real estate industry professionals to assist their clients by depositing the earnest money submitted by a prospective buyer into an escrow account. Imagine the problems that might arise if a seller simply pocketed a buyer’s initial deposit on a home and then resold the property to someone else? Escrow ensures a neutral third party holds the funds until the closing.
During the closing process, a closing agent accepts funds from escrow and disburses them only in accordance with the terms of the sales contract. Escrow helps protect all of the parties to the sale. Sellers gain the assurance a buyer will have sufficient funds to close the transaction. Additionally, if a contract makes a sale contingent upon a property inspection, a buyer has an opportunity to review the findings of the home inspection firm prior to the closing. Real estate agents don’t receive their commissions until the satisfaction of the terms of the sales agreement and the transfer of title. The use of escrow accounts helps protect real estate sellers in all these respects.
Mortgage Escrow Accounts And Real Estate Buyers
Yet the use of escrow accounts also holds important safeguards for real estate buyers (and their lenders). Typically, during a closing, a seller leaves escrow with the disbursement of the proceeds from the realty sale. In many cases, a buyer at the closing enters into a new, long-lasting, mortgage escrow relationship at this time.
The robust prices of homes for sale on Maui prevent many buyers from purchasing real estate outright for a lump sum. These buyers frequently apply for mortgage loans. During a closing, a mortgage lender pays the full sales price to the seller (and the seller’s lienholders and creditors). The new purchaser then begins making escrow payments to the lender who supplied the cash to close the transaction.
Managing Mortgage Escrow Accounts
Why do many lenders require the implementation of ongoing mortgage escrow accounts? Just as a contract exists between a seller and a buyer prior to closing, the sale of realty may initiate a mortgage loan contract between a mortgagor and a mortgagee. Many lenders require the establishment of a mortgage escrow account during the course of loan repayment. This process helps ensure the parties honor the terms of loan agreements.
Homes for sale on Maui usually require a new homeowner to pay recurring annual real estate property taxes. Additionally, many mortgage lenders insist that purchasers obtain homeowner’s insurance for the duration of the loan period. The lender typically seeks to ensure it will obtain compensation for outstanding mortgage loan debt if accidental damage occurs to the premises. Mortgage escrow accounts usually collect funds from buyers to pay for homeowners insurance premiums, property taxes, and other ongoing fees.
The Importance of Escrow
Escrow accounts help maintain the integrity of real estate sales. They greatly assist all of the parties involved in these transactions on Maui. Don’t hesitate to insist upon the use of this valuable business tool!
What would happen if your home was destroyed and you were forced to rebuild after a total loss? Would your insurance cover it all? The answer is, as uneasy as it sounds, maybe! It all depends on if your insurance carrier is able to offer you extended or guaranteed replacement coverage. In other words, will they cover partial or all expenses to completely replace your home.
For example, if you happen to purchase a foreclosed home for $230,000, but in today’s economy it’s worth $270,000 to rebuild, you would want to opt for $270,000 coverage to insure your home is fully covered in the case disaster strikes. Otherwise, if you opted to insure your home for the purchase amount, you’d find yourself paying out of pocket an additional $40,000 to cover the remaining construction costs which in most cases could result in severe financial hardship.
It’s also important to point out that due to inflation and market volatility, building materials and labor are sure to rise with time. Sure they dip in price too, but you must prepare for worst case scenarios — the main purpose of insurance. Extended and guaranteed replacement coverage are vital options meant to protect you against unpredictable circumstances that may occur. For the most part, companies offer homeowners a special home coverage endorsement — extended replacement coverage — that typically pays out an additional 25% or 50% over the dollar amount you insured on your home. In the unfortunate case your $270,000 home catches fire and burns to the ground, and is estimated to cost $300,000 to replace, extended replacement coverage will kick in and and pay the additional $30,000 to make you whole again. Guaranteed replacement coverage is the premier choice of coverage for homeowners. You can expect no cap on the dollar amount your insurance provider is willing to pay to rebuild your home due to total loss. Meaning, that in the event of catastrophic circumstances where your home valued at $270,000 is estimated rebuild cost is $400,000, your insurance company is responsible for the additional expense to ensure your home is renewed. For this reason, choosing a home policy that includes guaranteed replacement coverage is the best choice, despite all insurance companies offering this type of coverage. Take note that these add-on endorsements are available to protect you against rising construction costs, not add additional square footage to your damaged home that weren’t there previous to the loss. Your main goal is to reduce the risk of rising costs should you experience an unplanned, devastating event. To learn more about extended and guaranteed replacement coverage, please contact an insurance advisor at Bennett & Porter. We will help you determine an accurate amount of insurance protection for your dwelling. One of the greatest concerns that comes to mind for many people when thinking of college is, How do I plan to pay for it? As you’;ll discover in the infographic below, the best time to start saving for a college education is right now. The sooner you can begin putting money aside, the better off you will be when that time arrives. To show the importance of starting a college fund as soon as possible, we used the CNN Money college savings calculator and ran three different types of scenarios to demonstrate the urgency. It’s important to give those savings accounts enough time to grow with interest to ensure there’s enough money to pay for all college expenses. “Saving for College” Infographic Data Scenario 1: Upon the birth of your child, you must save $2,121 annually into a 529 plan, along with other plans once you’ve reached the maximum contribution, in order for your child at 18-years old to successfully complete and pay off college four years later. Scenario 2: Waiting to begin saving when your child reaches age six, you’ll find yourself putting away $3,059 each year into a 529 plan, along with other plans once you’ve reached the maximum contribution, in order for your child at 18-years old to successfully complete and pay off college four years later. Scenario 3: And if you procrastinate to your child’s 12th birthday, it’ll cost you $5,101 annually into a 529 plan, along with other plans once you’ve reached the maximum contribution, in order for your child at 18-years old to successfully complete and pay off college four years later. Source: http://cgi.money.cnn.com/tools/collegeplanner/collegeplanner.jsp A lot of misunderstanding surrounds alternative investments. Some investors still think of them as high-risk, exotic funds reserved for ultra-high-net-worth individuals and sophisticated institutions. However, the reality is that alternatives have a place in nearly every portfolio. Myth: Alternative investments are more volatile than stocks and bonds. Myth: Alternative investments are a unique asset class. Myth: Investing in one alternative fund will diversify my portfolio. Myth: Investors cannot access their money if they invest in alternatives. Myth: Only institutional investors and ultra-high-net-worth individuals can access alternative investments. Myth: Alternatives failed to protect investors during the financial crisis. Myth: Alternatives are too expensive. Investment terms by letter A Accredited Investor – While additional criteria also apply, in general, “Accredited Investors” are individuals with a net worth of $1 million or annual income of $200,000 (or $300,000 joint income with a spouse); or entities with a net worth of $5 million. Alpha – Measures the excess return of a portfolio above the expected return as established by comparison to a benchmark or by a financial model. The higher the alpha, the more outperformance. B Beta – Measure of the volatility systematic (market-related) risk, of a portfolio as compared to the overall market. The lower the beta, the lower the exposure to market risk (volatility). Buyout – An investment in which ownership equity is acquired in an existing company or division of a company. The seller could be the parent company, public shareholders or a private equity investor. Most buyouts involve significant leverage and are known as leveraged buyouts (LBOs). If the present management of the business participates in the buyout, the transaction is known as a management buyout (MBO). C Contango – Please see Roll Yield. Correlation – A measure of strength of the linear return relationship between two assets and their movement, correlation can be any value between +1 and -1. Greater portfolio diversification can be achieved by combining investments that have lower correlation to each other. Correlation of +1 means assets moved in the same direction when markets changed. Correlation of -1 means assets moved in the opposite direction when markets changed. Credit risk – The risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation. D F Futures/Futures contract – A future is a standardized financial contract between two counterparties in which the buyer agrees to buy an underlying asset (e.g., financial instruments or physical commodities) at a pre-determined future date and price. H I Information ratio – A ratio of portfolio returns above the returns of a benchmark compared to the volatility of those returns. Information Ratio measures a portfolio manager’s ability to generate excess returns, but also attempts to identify the consistency of the manager. This ratio will identify if a manager has beaten the benchmark by a lot in a few months or a little every month. Therefore, a higher Information Ratio equals better risk-adjusted return (i.e., more consistency of outperformance). Infrastructure – A real asset that includes both economic infrastructure projects (such as roads, bridges and utilities) and social infrastructure (schools, hospitals). Infrastructure companies often act as a monopoly in the provision of a facility or service of an agreed standard. Interest rate risk – The sensitivity of a bond or fund to changes in interest rates, as measured by duration. In the event of an interest rate increase, higher interest rate risk (longer duration) would correspond with a decrease in price. L Liquidity – Liquidity refers to the frequency at which investors are able to access their investment capital. When investing in alternatives, the liquidity terms of specific funds are aligned to liquidity profiles of the underlying investments. For example, alternative investment mutual funds trade in highly liquid securities (e.g., stocks, bonds), are valued daily and return of capital is within a few days if an investor redeems. Because traditional alternative fund vehicles—hedge funds, for instance—often invest in more complex and less liquid investments, they tend to offer more limited liquidity. Typically, investors must pre-notify the fund of their intention to withdraw capital, and payment of proceeds is at a pre-specified later date. For other long-term investments such as private equity, investors remain committed for longer periods of time (e.g., 5 to 10 years or more). Generally, less liquid investments are expected to offer a higher return to compensate for these constraints, often referred to as an “illiquidity premium.” Long/Short – An investment strategy that uses leverage to buy securities that are expected to increase in value (go “long”) and sell borrowed securities that are expected to decrease in value (“short selling” or “shorting”). The goal of shorting is to buy the same securities back for a lower price at a future date, thereby profiting from the difference. Whereas long-only investing enables profits from a positive outlook on a security, long/short investing also allows the manager to profit from a negative outlook. M N % LONG SECURITIES – % SHORT SECURITIES = % NET MARKET EXPOSURE O P Q R Real Estate Investment Trust (REIT) – An investor-owned corporation, trust, or association that sells shares to investors and invests in income-producing property. Risk budgeting – An approach to portfolio construction focusing on analysis of its main sources of risk. This approach forecasts expected volatility and correlation between underlying assets and securities to project total portfolio volatility. By using risk budgeting, portfolio managers allocate investments across the portfolio in line with the targeted level of risk. Roll yield – “Rolling” a futures contract means closing out a position in an expiring futures contract and establishing an equivalent position in a contract in the same commodity with a future expiration date. When the futures curve is upward sloping, i.e., the price of the contract is expected to increase (contango), this results in negative roll yield (loss). When the futures curve is downward sloping, i.e., the price of the contract is expected to decrease (backwardation), this results in positive roll yield (profit). S S = (return of the portfolio – return of the risk-free asset) / standard deviation of the portfolio Signal decay – How quickly new investing “signals” are incorporated into a security’s price. An example of a signal would be an analyst increasing the earnings outlook for a company. In efficient markets, that information is incorporated into the security’s price quickly, resulting in fast signal decay. In inefficient markets (e.g., certain emerging markets) information tends to be priced in more slowly. Standard deviation – A measure of the total volatility, or risk, of a portfolio. Standard deviation indicates how widely a portfolio’s returns have varied around the average over a period of time. A lower standard deviation means less variance of returns and therefore lower level of risk. T V Volatility – Variations in the performance of an investment, commonly measured by standard deviation relative to a mean or benchmark. High volatility is associated with higher risk, as large swings in performance can make it more difficult to anticipate the outcome of an investment over the long term. We often forget that our auto insurance policies are contracts. Besides paying your premium on time, in order to keep your car insurance rates down you should abide by your car insurance company’s rules. But how can you abide by the rules when you don’t even know what they are? Here are 10 common scenarios that Insure.com readers often ask about. If any of these hit close to home, quickly fix the issue before you get in a pickle. 1. You haven’t added a licensed teen to your car insurance policy. And insurers have ways of finding out. They can pull reports that identify “hidden” household members. One such report from LexisNexis looks for “undisclosed” newly licensed drivers between ages 15 and 25. If your insurer finds out about your licensed teenager this way, it can revise your premiums to include the young driver, or decide it doesn’t want your business anymore. If your insurer doesn’t find out about your teen until there is an accident, it still might cover the incident. That would be a lucky outcome, but you’ll back premiums based on the teen driver. Or, your auto insurance company may say it’s not covering the teenager and is dropping your policy because of your failure to inform it. 2. You let your adult child take your car with her when she moved to another state. If you want to do things the right way, add the child’s name to the car’s title. Then your child can buy insurance for the car in her own name and using her new address. This will also allow your child to register the car in her new state, which most states require. 3. You sold your car to your son but still carry the insurance on it. Since you are no longer the car’s owner, it’s time for the new owner — your child — to buy car insurance for the vehicle. If he’s still a minor, you may have to be on the policy with him. Minors typically must have a parent or guardian involved in the auto insurance contract. You could face problems submitting a claim if you have failed to tell your insurance company about the ownership change. Or worse, the car insurance company could say you hid the change as a scheme to get lower car insurance rates, which would qualify as insurance fraud and a reason for it to deny claims and cancel the policy. 4. You want to finance and insure a car for a relative who lives out of state. You should contact the finance company to see if it will allow your relative to be the “named insured” on a policy. If it agrees, your relative has the hurdle of finding an insurance company in her state that will permit her to insure a car she doesn’t own. If she can find such a company, then she still has to list you and the finance company on the insurance as owner and lienholder, respectively. If you carry insurance on the car without telling your insurer about the situation and your relative wrecks the vehicle, it’s very likely the accident wouldn’t be covered. Your car insurance company is likely to call you out for misrepresenting who was driving the car and where it was located, and cancel the policy. 5. You lend your car to a friend for a few months and don’t notify the insurance company. If your insurance company’s rules allow, you may be permitted to add your friend as a driver to your auto policy, but most car insurance companies don’t want to add a person outside of the household. If that is the case, your friend should consider insuring the car. Some insurance companies will allow someone to insure a car that he doesn’t own, as long as the owner is listed on the policy. If your friend crashes your car, your insurer can deny claims because you concealed pertinent information about the “real” driver and vehicle location. That can leave you and your friend on the hook for damages he caused. 6. You sold your car and the buyer is making payments but you’re still carrying the title and insurance. First, as the owner – because your name is still on the title — you have vicarious liability for the actions of the person driving the car that you “sold.” Second, you’re paying for insurance but any claims might not be covered. Your car insurance policy normally covers cars and drivers of your household, not others. If you’re in this situation, you should sign the title over to the new party. He can easily get insurance once he registers the car — and you will no longer be held responsible for his actions. To protect your interest in the car, make certain you’re listed as the lienholder on the car’s title and auto insurance policy. That way you’ll be notified if he tries to sell the car or drop car insurance. 7. You’re delivering pizzas with your personal vehicle. If you want to be paid to deliver items, you should change to a business-use or commercial car insurance policy. If you don’t and you get caught driving for deliveries, you’re on your own to compensate others for damages they sustained — and the damages to your own vehicle. 8. You let an “excluded driver” drive your car. So if that person gets behind the wheel of your car, even in an emergency, and causes an accident, you and the driver will be the ones to pay for any resulting injuries or property damage. Hide your keys from any excluded driver in order to lower your risk of financial disaster. 9. You bought a new car weeks ago and haven’t told your insurer. The deadline for informing your insurer about the new car varies by insurer, but is typically 14 to 30 days. Here’s more about extending coverage to new cars. Don’t bet on having automatic coverage, either; some car insurance companies don’t give you any. And if you’re adding a car rather than replacing one, you should buy coverage for it before driving it off the lot. If you’re outside the insurer’s automatic coverage period, or there is no extended coverage on your new car, and you’re in an accident, your insurance company won’t help you. You’ll be paying out-of-pocket for damages you do to your own car or others. 10. You haven’t told your insurance company that your live-in girlfriend drives your car. If you recently got married or moved in with someone, let the insurance company know immediately and have the person added to your policy as a driver. If you fail to do so, don’t be surprised if claims are denied if they cause an accident, or if you’re asked to pay back premiums based on the additional driver. If your car insurance company believes you were intentionally hiding the driver – say your girlfriend has a bad driving record — then it may say you committed fraud by means of misrepresentation. This means your car insurance company can cancel your policy. Source: http://www.insure.com/car-insurance/horrible-decisions-mess-up-car-insurance.html Did you know that after experiencing a homeowners loss, rebuilding your home to meet current codes or demolishing what is left of it might increase your costs up to 50 percent? Certain communities have laws or building codes that greatly affect the reconstruction of damaged homes. These building codes change over time and they rarely become less demanding. If a windstorm or other loss event damages your home, these local ordinances may increase the cost to repair, demolish or rebuild your home and add to your out-of-pocket costs. Ordinance or Law Coverage can help protect you from increased costs due to these regulations. Most homeowners policies will limit the amount of coverage for the following additional increased costs caused by adherence to current laws and ordinances. Here is an example of how the Ordinance or Law Coverage applies. Your home sustains damage to the roof when your Grand Oak tree falls into your living room during a windstorm. Roof repairs will probably now require costlier shingle replacement and minimally, hurricane roof straps or specific size roof nails. These additional and more expensive items will add significant costs to your repair bill. Ordinance or Law Coverage pays for those costs, which insurance carriers would otherwise consider an improvement to your property absent the coverage. Without this important endorsement, you must pay the additional costs. Add these costs to your deductible and you can see why this coverage can be so critical to your budget. As the body of safety research grows, building codes reflect that new knowledge of how to make property safer and better able to withstand wind and other natural forces. Therefore, the older your home, the more susceptible it is to code upgrades after a loss. For example, a home built in 1995 would have had much less stringent local building codes governing your electrical, plumbing or roof systems. To bring a 1995 home up to today’s standards would cost much more than simply repairing the damage. Ordinance or Law Coverage applies whether you suffer a partial or total loss to the structure. This valuable coverage can save you thousands of dollars in upgrades you would otherwise pay out of pocket. Depending on the state where your home is located, you can select Ordinance or Law limits of 10, 25 or 50 percent of your Coverage A Dwelling limit. For example, if the Dwelling amount on your home is $300,000 the 10% option will allow up to $30,000 in upgrades due to building code requirements; the 25% option will allow up to $75,000; and the 50% limit will allow for up to $150,000. The worst possible time to learn of coverage restrictions is after you have suffered a loss. Talk to your agent today about this important coverage. It’s scary to realize that some drivers on the road have no insurance or have insufficient coverage. But when you have uninsured/underinsured motorist coverage, you’ll have protection even if you’re in an accident with one of those drivers. Key points about coverage for uninsured/underinsured motorists: The requirement for uninsured motorist coverage varies by state. In most states, it applies only to bodily injury coverage, but you can usually add uninsured/underinsured motorist property damage coverage to your policy as well. Ask your Bennett & Porter representative about the coverages available in your state. D & O Liability definition: Coverage for defense costs and damages (awards and settlements) arising out of wrongful act allegations and lawsuits brought against an organizations board of directors and/or officers. Your organization’s assets and the personal assets of its directors and officers are at risk with every decision you make, every day. All organizations, whether publicly or privately held, and the people who lead them, are vulnerable to a multitude of Directors & Officers (D&O) exposures. These can include securities litigation, regulatory actions, allegations of misrepresentation and other breaches of fiduciary duties. Mergers and acquisitions, signs of financial weakness and perceived conflicts of interest can all be triggers for shareholders, competitors, customers, employees and government entities to make devastating claims against directors and officers. Directors and Officers claims have become increasingly common. Directors and officers themselves can be held personally liable for these claims. To attract and retain qualified executives and board members, it’s crucial to have a comprehensive insurance program in place. Seventy percent or more of all directors and officers have inquired about the amount and scope of their organizations’ D&O coverage. Directors and Officers Liability policies have a broad definition of claim and cover the defense costs, settlements and judgments associated with claims. D&O policies not only help provide protection for the assets of the organization and the personal assets of its directors and officers, but also help protect the personal assets of a director or officer’s spouse, domestic partner or the deceased director or officer’s estate. FACT: 36 percent of all organizations have reported D&O claims in the last 10 years (according to a 2012 Towers Watson Directors and Officers Liability Survey) Published by: The Travelers Indemnity Company There are many reasons you should protect yourself with Directors and Officers coverage, but the top 5 reasons are: Directors and Officers Liability policies have a broad definition of claim and cover the defense costs, settlements and judgments associated with claims. D&O policies not only help provide protection for the assets of the company and the personal assets of its directors and officers, but also help protect the personal assets of a director or officer’s spouse, domestic partner or the deceased director or officer’s estate. Information gathered by a 2012 Towers Watson Directors and Officers Liability Survey Published by: The Travelers Indemnity Company
Guaranteed Replacement Coverage
Reality: While some alternative investments can experience higher levels of volatility than traditional stocks and bonds, as a group, they are no more volatile than any other investment. In fact, many alternatives experience far less volatility than the stock market.
Reality: Alternatives represent different approaches to investing across a variety of markets and vehicles. A useful way to think about alternatives is to differentiate between their “contents” – the assets or strategies that determine how individual investments might be expected to perform – and their “containers,” the fund structure that will determine transparency and access to capital.
Reality: Just as adding one stock or mutual fund does not lead to significant diversification, so too a single alternative investment may have limited impact. Investing in only one alternative strategy may provide some diversification benefits, but can also concentrate risks.
Reality: The liquidity of alternative investments depends on the individual investment. Some alternative mutual funds provide daily access to cash. Limited partnerships, on the other hand, can have restrictions from 30 days to longer than 10 years.
Reality: Individual investors have greater access to alternatives than ever before due to innovations in product structures. Open-end mutual funds, for example, have no-or-low barriers to investing. Other structures, such as registered closed-end funds and unregistered funds, have some limits on who can access them.
Reality: While correlations across nearly all investments converged during the financial crisis, many alternative investments saw smaller drawdowns than stocks did in 2008.
Reality: The fees for alternative investments vary and depend on the fund’s structure. An alternative investment’s “container” usually indicates the fees an investor can expect to pay. Partnerships typically entail management and performance fees. Mutual funds charge a management fee but no performance fee.
Backwardation – Please see Roll Yield.
Commodity – A commodity refers to a tangible good, rather than a financial asset. Commodities are consumed either directly or indirectly by individuals every day including such goods as industrial and precious metals, oil and natural gas, and agricultural products.
Derivatives – Contracts entered into for the purpose of exchanging value on underlying securities or physical assets. Generally, derivatives are used for operational efficiency or to control transaction costs.
Fund of funds – A fund that allocates to multiple funds and possibly to direct private transactions as well. One benefit to this approach is that investors gain broad exposure to different strategies and managers for a smaller initial investment (compared to investing in each one separately). In addition, a professional manager selects investments and provides oversight, deciding when to buy, sell or reallocate. Funds of funds tend to have additional fees in compensation for this professional management.
Hedge funds – Hedge funds are private pools of investment capital with broad flexibility to buy or sell a wide range of assets. One common attribute is that they seek to profit from market inefficiencies rather than relying purely on economic growth to drive returns. There is no “one-size-fits-all,” and the types of investment strategies pursued by individual hedge funds are extremely diverse.
Idiosyncratic risk – Risk that arises from the circumstances or characteristics of trading a specific security rather than from market movement or other macro-economic factors.
Leverage – The use of financial instruments or borrowed funds to amplify performance. In an upward- or downward-trending market, a leveraged investment that is on the correct side of the trend will see magnified gains, while one on the wrong side of the trend will see magnified losses.
Market neutral – An investment strategy that seeks to hedge out all or a significant majority of market risk by taking offsetting long and short positions, resulting in extremely low or zero market exposure.
Net market exposure – An indication of the sensitivity of a long/short fund to direction and volatility of markets. Lower net exposure typically means less direct impact from overall market movements.
Option-adjusted spread (OAS) – A measurement tool for evaluating price differences between bonds with embedded options. A higher OAS typically indicates a riskier bond.
Private equity – Ownership interest in a company or portion of a company that is not publicly owned, quoted or traded on a stock exchange. From an investment perspective, private equity generally refers to equity-related finance (pools of capital formed through funds or private investors) designed to bring about some sort of change in a private company, such as helping to grow a new business, bringing about operational change, taking a public company private or financing an acquisition.
Qualified Purchaser – While additional criteria also apply, in general, “Qualified Purchasers” are individuals with at least $5 million in investable assets or entities with at least $25 million in investable assets.
Real assets – Physical assets valued for their intrinsic worth, such as commodities, REITs, inflation-linked bonds, private real estate and infrastructure.
Sharpe ratio – Measurement of an investment’s excess return per each unit of additional risk (as measured by standard deviation), compared to a risk-free asset. Sharpe Ratio indicates whether portfolio returns are due to smart investing or excess risk. In other words, the higher the Sharpe Ratio, the better the risk-adjusted return, calculated as:
Transparency – Transparency refers to the level of disclosure and access to portfolio reporting, such as underlying holdings and risk metrics (i.e., not just portfolio performance). For certain fund types such as alternative investment mutual funds, specific transparency and reporting is mandated. For other types of funds, transparency is often optional and at the discretion of the fund manager.
Venture capital – Funding provided by investors to start-up companies with less access to capital markets but a high potential for growth. Typically, venture capital investments have a high risk profile but also the potential for above-average returns.
No one wants to raise their hand and offer to pay more for car insurance. But insurers are permitted to consider all household residents when they price a policy, including a teen. Withholding information about your teen driver from your car insurance company is a big no-no.
Sure, it’s so much easier to put off a call to your agent and let your child move away with a family car. But when your car is being driven and garaged in a new area, the risks of you as a customer have changed. Car insurance companies expect to be informed about these changes. If your daughter were in an accident, your insurer could say you concealed vital information about the vehicle’s location, deny your claim and cancel the policy.
Uh oh. In general, you can’t carry insurance on a car in which you don’t have an “insurable interest.” Typically those with an insurable interest are the car’s owners, lienholders and co-signers – meaning those who would be affected financially if something happens to the car.
Auto finance companies want evidence that the car loan is in the same name as the insurance policy. Since you’re not the primary driver of the car, nor is the car at your residence, it is difficult, if not impossible, for you to insure the car.
Your car insurance policy typically will cover a friend who drives your car occasionally, but it’s a different story when you loan your car out for a long period. The car is now housed someplace other than your residence, and someone else is acting as the primary driver of the car — both circumstances your car insurance company wants to know about.
Don’t keep your name and insurance on a car that another person possesses!
Most personal auto insurance policies exclude coverage if you use the vehicle to deliver items, whether it’s pizza, newspapers, packages or medical supplies. Insurance companies see unsavory risk in delivery drivers because they are constantly on the road.
Big mistake. When you put a named-driver exclusion on your policy it meant that the person listed is not covered under any circumstances and shouldn’t be driving your car.
If you traded in a vehicle, then your car insurance policy likely extends the same exact coverage to your new car for a limited time. This means if you bought only liability on your old car, your new car would only have liability coverage.
Insurance companies hate it when you “forget” to tell them about a driver who lives with you or regularly uses your car. Insurers can’t charge you correctly if they don’t know about all licensed household members, including a girlfriend or spouse.
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