Life Insurance

Life Insurance

Life insurance refers to a contract between an insurance company and an insured, according to which upon the death of the insured, the insurance company will pay a benefit to a designated beneficiary. People usually take life insurance to leave their loved ones with the funds necessary to cover the costs of burial, or for financial support after the passing away of a major family breadwinner. The contract usually involves a premium paid on a regular basis by the insured. Some of the largest insurance companies in Canada include Manulife Financial, Standard Life, Sun Life Financial and Industrial Alliance. Large insurance companies often manage assets close to billions of dollars on a yearly basis.

Further, insurance policies vary from one another and may include disability insurance or terminal illness insurance. Also, there exist insurance contracts specifying an annuity. The amount of the insured benefit, as well as the premiums involve fairly complicated calculations taking into account the age of the insured, his or her general health condition, amount of personal assets, also known as personal net worth, in addition to income. Also, insurance policies may be individual or involve group benefits. Usually, life insurance policies have exceptions, such as suicide of the insured which does not warrant the payment of the benefit.

Industrial Alliance. Photo by Elena

As a general rule, a course on financial markets will involve some discussion of insurance, since insurance falls under the umbrella term of financial services. Additionally, some life insurance contracts, such as whole life, universal life or variable life may also be seen as investments. Interestingly enough, insurance has a long history, with its origins dating as far back as Ancient Rome, Babylon and 2000 BC China. Initially, insurance emerged as a protection to traders. However, modern life insurance dates back to the 18th century. According to historical records, the first insurance company to offer life insurance was the Amicable Society for the Perpetual Assurance Office.

Your life insurance needs will vary over the course of your life, peaking as you cope with hefty mortgage payments and big tuition bills for kids, and falling after you’re retired.

How much you need: Whatever policy you buy, the most important thing is tat you end up with enough coverage.

The amount of life insurance you need roughly correlates with your family’s annual living expenses for the number of years you’ll need the insurance. Add together all of your family’s expenses for the years you’ll need insurance. You should include future college costs, mortgage payments, costs to settle your estate, and an emergency fund (typically, three months salary). Then subtract all family income other than your salary. Be sure to include Social Security and pension payments as well as any income you may receive from your investments. Adjust both your future expenses and income to take account of inflation. The result of this calculation in how much life insurance you need. Some experts suggest an even simpler formula: multiply your annual take-home pay by five.

What your options are: Term insurance will pay your survivors a death benefit if you die whir the contract is in force. It is often called “ pure” insurance because it offers a death benefit without a savings component. A life insurance policy can be locked in for 1 to many years. It is often the best - and cheapest - bet for families who want to provide for the future in the event of the loss of a breadwinner and who want to target they years when their insurance needs will be greatest.

Running a Business

Running a Business

Running a business can be quite challenging for several reasons. Of course, mostly because the business world is competitive, and a multitude of factors determine whether a business will be successful. Often, people say that a business will be successful if it stays afloat for over a year, although there are other points of view. For example, economists suggest that as long as you can cover your fixed costs, then you should keep the business operational.

The main activities of a business are financing, operations and investing. Investing is a very large part, especially since most startups require investment or initial capital. At times, it may take a business a while before finding a niche in its industry and make profits. Large corporations, such as multinational business firms, may even redistribute part of the profits in the form of dividends.

One way companies obtain cash flow to ensure smooth operations of the business is through shareholders equity. When companies go public, they sell shares (commonly known as stocks) and obtain equity capital. Along these lines, IPOs (initial public offerings) represent very important events for firms. Interestingly, insider information often plays a role on how profitable such initial sales of shares may be to a particular investor.

Ernst and Young. Statistical tools and mathematical models greatly facilitate financial forecasting. Photo: Elena

Alternatively, regardless of the business, cash flow is important, but firms now have many other options for getting paid. Online banking, online shopping, mobile payments and wallets, have all designed new ways of customers and businesses interactions. However, while the Internet facilitates e-commerce (online commercial transactions) and virtual trade, it has also opened the Pandora's box of reviews, which when negative, can seriously harm the reputation of a brand.

Further, brand is a concept most closely related to marketing, and most businesses will at some point resort to some type of marketing. Indeed, virtually no business can survive and prosper without any advertizing and promotional campaigns. However, established brands such as Chanel may advertise their products in completely dissimilar ways than companies selling office supplies.

Stocks and Bonds

Stocks and Bonds

For any business to be successful, it must raise capital and have a healthy cash flow. One of the ways to obtain funds is to borrow money, such as bank loans, which in accounting terminology is referred to as liabilities. Another accounting term is shareholders' equity and it refers to shares of the company, which represents another way a company may raise capital. When a company first goes public, its initial public offering (IPO), its shares becomes available to the public and investors who buy these become shareholders owning stocks.

In terms of investing, stocks are usually considered riskier than bonds. To own a controlling majority of shares, an investor must possess 51% of the shares. Further, an appointed Board of Directors typically makes decisions in a company. Stocks are traded on stock exchanges, such as the NASDAQ Stock Market. The NASDAQ is the largest stock exchange in the United States and is located in New York City. As a general rule, companies pay dividends to shareholders, from the profits remaining after all expenses.

Deloitte. Individuals cannot open an account with the central bank, only the government; individuals must go to the commercial banks. Photo by Elena

Alternatively, bonds are issued debt. Investing in government, municipal or federal bonds is commonly considered some of the less risky investment strategies. Risk tolerance and risk avoidance are important factors in determining the profile of an investor and in subsequently choosing an appropriate portfolio for that investor. Balanced portfolios may contain stocks and bonds in similar percentages. Moreover, investment portfolios may be geared towards income, growth or concentrate on guaranteed capital, such as GICs (guaranteed investment certificates).

T-Bills or Treasury bills are government backed short-term obligations. T-Bills are a very marketable money market security. T-Bills refer mainly to the US government, but other governments likewise use this strategy to raise money from the public. At maturity, T-Bills pay interest and are thus attractive investment opportunities due to their relative safety and simplicity.

Maximizing Shareholder Value

Maximizing Shareholder Value

In finance, there is a common term known as the management principle, also at times referred as the value based management, which basically means that managers' primary goal is to maximize shareholders' value. In other words managers strive to increase the value of the stocks of a company and increase value of stocks or by increasing the dividends paid. Dividends are redistributed profits, which a firm pays to its shareholders from the profits left after paying all taxes and expenses. Indeed, many investors choose which stocks to acquire by the dividends the shares pay (earnings per share).

A model of shareholder value maximization is discussed in the literature and includes seven value drivers, namely revenue, operating margin, cash tax rate, incremental capital expenditure, investment in working capital, cost of capital and competitive advantage period. Further, some strategies of shareholder value maximization correspond to elements typically associated with business growth and development, such as investment in research and development, training and motivation of employees, corporate social responsibility (CSR), profitable sales strategies and so on. In turn, CSR may impact a company very positively by enhancing its reputation. Therefore, some believe that investors are more willing to invest in companies with demonstrated positive CSR. Moreover, recently companies exert efforts in keeping with environmentally friendly strategies. Indeed, many companies showcase how they are going green, by attempting to use less paper billing, among other things.

Interestingly, the model has often been criticized. For example, as is often the case with any business endeavour, short term goals may contradict long term goals. In other words, common sense dictates that making a quick buck may often affect negatively a long term growth and development business strategy. Hence, a focus too narrowly concentrated on maximizing shareholder value, may lead a company to several problems, such as increased risk, lack of transparency and shortsighted business strategy.

Bank of Montreal logo. There is a distinction between commercial (for profit) and central banking. Photo: Elena

Muriel Siebert – The First Woman in Finance

Muriel Siebert – The First Woman in Finance

Muriel Siebert is known as the first woman in finance and as the first woman to own a seat in the New York Stock Exchange, a feat that was no easy task due to the discrimination and sexism she faced, prevalent at the times. She was also the first woman to be at the head of a New York Stock Exchange company and was the only woman among 1,365 coworkers who were men. She joined the NYSE in December 1967.

Muriel Siebert, nicknamed Mickie, was born in Cleveland, Ohio on September 12, 1928. She died at age 84 from cancer complications on August 24, 2013. The following text is dedicated to her inspiring story. Muriel Siebert was an acclaimed spokesperson, not only for her opinions on financial markets, but also for her support for the place of women and minorities in industry. She created the Siebert Entrepreneurial Philanthropic Plan and also contributed to putting in place the program Financial Literacy for Women.

Roses in a garden. Photo by Elena

According to her own account, she was advised by a friend or colleague to work for herself. The person had told her that was the only way she would get the pay, the respect and the satisfaction she deserved. Indeed, she opened her own company named Muriel Siebert & Co., she soon after applied for a seat at the NYSE. Since in those times sexism and discrimination were rampant, it was very difficult for her to obtain that position. But she persevered and got the seat. Interestingly, and sadly enough, of the ten men she asked to sponsor her application, only one accepted to do so.

In 1977, she entered the role of Superintendent of Banks, overseeing all banks of the New York State, which translated into managing or regulating roughly $500 billion. Not a single bank she oversaw failed during her tenure. Amazingly, she is quoted as thinking to herself that she did astonishingly well for a person who dropped out of college. She was educated in accounting.