brass Blog

It’s been a while since we’ve added an entry in our financial lexicon, so here’s one for the b section: buyback.

Basically, a buyback is the repurchasing of shares on the market by the company offering them. About.com has a simple sketch model of how a buyback might look.

Companies may buy back shares for a variety of reasons. Often times, the value of the shares of said company see an increase in value if some or most of the shares are removed from the market (supply-and-demand sort of thing), so a buyback can be a way of boosting share values for current investors or spurring more interest in the company.

Buybacks can (by limiting the amount of shares on the market) also regulate shareholders whom may be inching in on a controlling stake in the company.

A company may buy back shares by proffering a “tender offer” to shareholders (an offer from the company to return some or all of their shares to the company for a price usually reflecting market value), or the company may simply buy the shares from the market just like you or I (if I wasn’t a recovering poor collegian) would do.

Got buybacks down? Good. Now go out there and start a business so you can put it into practice (once you go public of course).

-Jennie

Welcome back. This is another installment of our surprisingly exciting hit series where I define an investment or money word I have come across in my daily dealings here at brass.

This week, we’ll be looking at expense ratios, as I saw on iwillteachyoutoberich.com.

I discovered that an expense ratio is the operating cost, given as a percentage, of a particular mutual fund. An “operating cost” is basically the money it takes to maintain the fund (like overhead for running a business). The operating costs are taken out of the fund’s assets, thereby lowering the return to the investors in the fund.

In short, higher expense ratios does not mean higher returns — you’ll definitely want to know how high those ratios are before you invest in a fund, because they cut into your profits.

Questions? Answers? Let us know what you think about expense ratios or what your experience with them has shown you. Until next week…

- Jeremy

Since studying money and personal finance wasn’t my first pursuit before working at brass, every now and then I come across a word that has me scouring the dictionary. We figure everyone else has the same problem (and pre-brass I know I was a lot less likely to head for the dictionary), so we thought we’d make it easier for you. We’ll share some of the lesser-known money/investment terms, seeing as how we’ve already done the work. About once a month, we will include a term in our blog much like the one I came across while browsing my Google Reader the other day. An article from thestreet.com was covering six investments they recommend adding to your investment portfolio. The six investments included two stocks, two mutual funds, and two ETFs. I was doing okay until I hit the acronym. So what is an ETF?

First off, don’t confuse EFT with ETF. Electronic Funds Transfer (EFT) involves things like direct deposit or overdraft protection, while Exchange-Traded Funds (ETF), as you might have guessed, is an investing vehicle.

Basically, ETFs are groups of stocks and bonds, which trade like stocks (the value of the shares fluctuate daily), according to Investopedia’s definition and The Motley Fool. Rather than having shares in one single company (like regular stock), ETFs are shares of an entire exchange, so you’ve got built-in diversity of companies within one industry (so if one tanks, you won’t lose everything). If you are interested in investing via ETFs, they must be purchased through a broker, so talk to your investment broker (if you have one) or an investment advisor before you unload your latest lottery winnings into one. I myself am still learning about them, so feel free to leave a note if you’ve already got some in your portfolio or if you learn anything interesting.

That’s about it for this blog, but keep your eyes here for further investment/money terms you might want to know more about.

Happy trading.

I have often wondered what an “employee-owned company” is. I see that slogan emblazoned on bags at stores up here in Oregon, like Bi-Mart and WinCo, but I’ve never known what it means. I did some poking around online and discovered that if a company is “employee-owned,” then some of its employees own stock in the company. I found this FAQ which answers some questions about the basics of an employee-owned company (EOC).

While you shouldn’t plan on becoming the boss of Ted’s Tea Shack just because you run the register, you can reap some sweet rewards taking part in an EOC. I don’t know about you, but owning shares in the company you work for seems like a pretty cool way to invest. According to one USA Today article I read, there are also tax benefits and breaks for employees of an EOC. The article also states that employee ownership has been gaining popularity in the last 20 years. Some studies have found that these companies grew faster, were more productive, and survived longer over the long run than their counterparts. From an employee’s perspective, I think it could be pretty motivating to let those who contribute to the success of a company benefit from it as well.

I also found a couple resources for any of you who might be interested in working for an employee-owned company–or even starting your own:

The National Center for Employee Ownership (NCEO) has a list on their website of the 100 largest employee-owned companies in America and where they are located, which is awesome if you are looking to work at one.

For the entrepreneurs among you, check out eHow’s article on starting an employee-owned company. Who knows? You might be destined for that NCEO list in a few years.

Peace out.

Recently, I just finished editing an article for the upcoming May issue of brass|MAGAZINE about saving. I’ve been doing a lot of research on different ways to save money and everyone seems to agree that when it comes to saving, “the earlier, the better.” A lot of experts say that for young adults like me (I’m 23, just graduated from college, and my job as the Editorial Assistant here at brass is my first job in the “real world”), a Roth IRA (Individual Retirement Account) is one of the easiest ways to multiply my money for the future. So I looked into it and here’s what I found:

• You can contribute to a Roth IRA if you make less than $110,000 if you’re single or $160,000 if you’re married filing jointly (I fall into the first category).
• If you make less than $95,000 (me again), you can contribute up to $4,000 a year.
• The contributions come out of your paycheck after taxes, which means that you’re paying taxes on that money now. But it also means that if you follow the rules, you don’t pay taxes on the money when you take it out in a few decades.

(Those numbers are all applicable for the 2006 tax return and may change in the coming years.)

Another perk? While you generally only get to take distributions (that’s when you take money out of your IRA) without penalties after you turn 59½, there are some really cool exceptions. Qualified first-time home buyers can take some money out to cover a few expenses, penalty free. Plus, your Roth IRA savings may be able to help if medical bills start piling up and you are unemployed, if you are disabled, or even if you need help paying tuition. So, even though a Roth IRA is primarily used to save for retirement, it could also help you out if you need it before your hair starts graying.

Personally, I’m excited to see my money grow. I like the idea of having a million-plus to my name when I retire. I would really like to retire somewhere sunny…like the Bahamas.