Financial Topics Archives

Sep

2023

Who’s Eligible for the Nurse Corps Loan Repayment Program?

By Rebecca Safier | Debt Payoff, Student Loans, student_loan | No Comments

Working as a nurse can be a fulfilling career with plenty of job opportunities. However, working as a nurse also requires you to meet specific educational and certification requirements, which could mean taking on student loan debt.

Fortunately, the federal government anticipated this issue, and it’s trying to put nurses in places with the most need while helping them get out of debt. If you commit to working in a high-need or shortage area for a certain period of time, you could qualify for forgiveness of your student loan debt.

The Nurse Corps Loan Repayment Program , one of the student loan forgiveness programs for nurses, can be a great help for nurses who find themselves overwhelmed by student loan debt . Read on to learn how the program works, including how much loan forgiveness it offers and how to qualify.

Requirements for the Nurse Corps Loan Repayment Program

To be considered for the Nurse Corps Loan Repayment program, there are some key requirements you have to meet. Checking off as many of the eligibility requirements as possible will give you the best chance of success.

So, what are the requirements? They include:

• Being a U.S. citizen, U.S. national, or permanent resident who is licensed as a registered nurse.

• Working full-time at one of the Critical Shortage Facilities the government recognizes in an underserved area or at a nursing school.

• Graduating with a nursing degree from an accredited nursing school in the U.S. or its territories.

Since the program is so competitive, the government gives preference to nurses with the greatest financial need. For nurse faculty applicants, it gives preference to those who work in a school where at least 50% of the students are from a disadvantaged background.

💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Nurse Corps Loan Repayment Program Service Commitment

Many U.S. residents go without needed treatment because there’s a shortage of healthcare workers where they live. By participating in the Nurse Corps Loan Repayment program, you can realize your passion for providing care to people who really need it.

Specifically, you must commit to working in a Critical Shortage Facility full-time for two years. In some cases, nurses can elect to continue for an additional year.

Once your service commitment to the Nurse Corp Loan Repayment Program is complete, the program will pay 60% of your unpaid nursing debt. If you can get a one-year extension, the government will pay back 25% of the original loan balance. Keep in mind you’ll have to pay taxes on the amount of the loan repayment you receive.

Are There Other Loan Repayment Options for Nurses?

As a nurse, there are other repayment options worth exploring that could help you manage your student debt. Here are a few options to check out:

• National Health Service Corps Loan Repayment Program: If you’re a nurse practitioner, you can tap into this program. In exchange for working two-years at an approved site , the National Health Service Corps Loan Repayment Program provides up to $50,000 in loan repayment to full-time workers and up to $25,000 to half-time workers. If you’re selected to continue past the service term, you can get more debt paid off.

• Apply for income-driven repayment. If you’re having trouble keeping up with payments on your federal student loans, consider applying for an income-driven plan like the SAVE Plan. These plans adjust your monthly payments to a percentage of your discretionary income while extending your loan terms. If you still owe a balance at the end of your term, it will be forgiven.

• Consolidate your federal loans. Federal Direct loan consolidation involves combining your federal loans into one new loan with a new interest rate. You can also choose a new repayment plan and may qualify for terms as long as 30 years, depending on your loan amount.

Another Option: Refinancing

With competition so high for loan repayment programs, many applicants won’t be selected. And if you’re not working at a Critical Shortage Facility, you’re not going to qualify. Others may complete their service commitment, but still struggle with student loan debt. But there’s another option to consider that can help you manage student loan debt beyond the Nurse Corps Loan Payment Program or the National Health Service Corps Loan Repayment Program.

Refinancing your student loans can make sense for borrowers who are established in their careers and have built up a solid credit rating. Depending on your credit score and other factors, you could qualify for a lower interest rate than you have now.

You also have the option of choosing a fixed-rate loan or a variable-rate loan. If you like the idea of having a set payment amount, month after month, a fixed-rate loan fits the bill. If you can live with flexibility, a variable-rate loan follows the market, which means it could start lower but then rise. Of course, when rates rise, so does your payment amount.

All that said, refinancing federal student loans can have a major downside. If you refinance federal loans with a private lender, you’ll lose eligibility for federal programs, including income-driven repayment and federal loan forgiveness programs. Make sure you’re not relying on any federal benefits before refinancing federal loans, since you can’t reverse the process after it’s done.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

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Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep

2023

How to Get Out of Student Loan Debt: 6 Options

By Kayla McCormack | Debt Payoff, Student Loans, student_loan | No Comments

Dealing with substantial student loan debt can be overwhelming, especially if you find yourself struggling to make your payments.

Fortunately, there are some options that may help minimize the amount of money you pay back on your federal student loans, such as the Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) programs.

When trying to figure out how to get rid of student loans, it’s important to understand that you might be able to reduce your monthly payment with a student loan refinance. Or you may be able to temporarily postpone your federal loan payments through deferment or forbearance.

Table of Contents

Loan Forgiveness Programs
Income-Driven Repayment Plans
Disability Discharge
Temporary Relief: Deferment or Forbearance
Student Loan Refinancing
Filing for Bankruptcy: A Last Resort

Key Points

• Federal programs like Income-Driven Repayment (IDR) and Public Service Loan Forgiveness (PSLF) can reduce or eliminate federal student loan debt.

• Refinancing student loans may lower monthly payments and total interest paid.

• Deferment or forbearance options allow temporary suspension of federal loan payments.

• Disability discharge is available for federal student loans if the borrower has a permanent disability.

• Bankruptcy is a last resort for discharging student loans, requiring proof of undue hardship.

Options to Get Out of Repaying Student Loans Legally

1. Loan Forgiveness Programs

Depending on your eligibility, there are a few different federal loan forgiveness programs available to borrowers with federal student loans. These programs could help you get out of paying a portion of student loan debt as they forgive your loan balance after a certain number of years.

President Joe Biden proposed a federal student loan debt cancellation of up to $20,000 for those who met household income eligibility. However, the Supreme Court ruled against Biden’s plan, saying the president did not have the necessary authority to take such action. Since then, President Biden has announced various programs to provide relief for those carrying federal loans, along with calling attention to existing plans.

Each forgiveness program has different eligibility criteria.

Teacher Loan Forgiveness

This federal student loan forgiveness program forgives the loans of highly qualified teachers. Depending on the subject area they teach, teachers who meet the eligibility requirements may have up to $17,500 or up to $5,000. Teachers are eligible to apply for this loan forgiveness program after they have completed five years of service.

Public Service Loan Forgiveness

This program is designed for those working in public service. In order to qualify, applicants must meet the programs eligibility requirements, including:

• Work for a qualified employer

• Work full-time

• Hold Direct Loans or have a Direct Consolidation Loan

• Make 120 qualifying payments on an income-driven repayment plan

Borrowers who are interested in pursuing PSLF will have to follow strict requirements in order to qualify and have their loan balances forgiven.

🛈 While SoFi does not offer loan forgiveness solutions, we do offer student loan refinancing, which could help you save money on your student loan debt.

2. Income-Driven Repayment Plans

Income-driven repayment plans for federal student loans tie a borrower’s monthly loan payments to their income and family size.

The repayment period for income-driven repayment plans varies from 20 to 25 years. While these plans help make loan payments more affordable for borrowers, extending the loan terms may result in accruing more interest over the life of the loan.

President Biden has announced the creation of the Saving on a Valuable Education (SAVE) Plan , which replaces the existing Revised Pay As You Earn (REPAYE) Plan. Borrowers on the REPAYE Plan will automatically get the benefits of the new SAVE Plan.

The SAVE Plan, like other income-driven repayment (IDR) plans, calculates your monthly payment amount based on your income and family size. According to the White House, the SAVE Plan provides the lowest monthly payments of any IDR plan available to nearly all student borrowers.

Starting next summer, borrowers on the SAVE Plan will have their payments on federal undergraduate loans cut in half (reduced from 10% to 5% of income above 225% of the poverty line).

A beta version of the updated IDR application was made available in early August 2023 and includes the option to enroll in the new SAVE Plan. The DOE says that if you apply for an IDR plan (such as the SAVE Plan) in the summer of 2023, your application will be processed in time for your first federal student loan payment due date.

3. Disability Discharge

When working out how to get rid of student loans, take into account that It may be possible to have federal student loans discharged if you have a permanent disability. To be eligible for the disability discharge, you need to show the Department of Education that you are not able to earn an income now or in the future because of your disability.

To do so, you need to get an evaluation from a doctor, submit evidence from Veterans Affairs, or show that you are receiving Social Security Disability Insurance. You cannot apply for disability discharge until you have been disabled for 60 months unless a doctor writes a letter saying that your disability and inability to work will last at least 60 months.

4. Temporary Relief: Deferment or Forbearance

Federal student loan repayment was put on pause over three years ago due to the Covid-19 shutdown. As part of the agreement reached in the Debt Ceiling bill, the Department of Education’s student loan forbearance program ends in 2023, with interest resuming on September 1, 2023 and payments due beginning in October 2023.

However, in late June, President Biden announced the creation of the On-Ramp Program . The Department of Education is instituting a 12-month “on-ramp” to repayment of federal student loans, running from October 1, 2023 to September 30, 2024, so that “financially vulnerable borrowers” who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.

Apart from the On-Ramp Program, forbearance and deferment both offer borrowers the ability to pause their federal student loan payments if they qualify.

Depending on the type of loan you have, interest may continue to accrue even while the loan is in deferment or forbearance. However, applying for one of these options can help borrowers avoid missed payments and potentially defaulting on their student loans.

Note that private student loans don’t offer the same benefits as federal student loans, but some may offer their own benefits.

5. Student Loan Refinancing

This option won’t get rid of your student loans, but it could help make student loans more manageable. By refinancing your student loans, you can potentially qualify for a lower interest rate, which can possibly lower your monthly payments or save you money on interest over the life of your loan.

If you refinance with a private lender, you can also change the length of your student loan. While private lenders can refinance both your federal and private student loans, you do lose access to the protections that federal student loans provide, such as income-based repayment programs, on the amount that is refinanced.

6. Filing for Bankruptcy: A Last Resort

Bankruptcy is a legal option for the problems caused by people struggling with how to take out student loans. However, it is rare that student loans are eligible for discharge in bankruptcy. In some instances, if a borrower can prove “undue hardship,” they may be able to have their student loans discharged in bankruptcy.

Filing for bankruptcy can have long-term impact on an individual’s credit score and is generally a last resort. Before considering bankruptcy, review other options, such as speaking with a credit counselor or consulting with a qualified attorney who can provide advice specific to the individual’s personal situation.

The Takeaway

When you are learning how to take out student loans, the future debt may not be obvious. It can be challenging to pay student loan debt, but there are options that can temporarily reduce or eliminate your payment. It is only in extremely rare circumstances that student loans can be discharged in bankruptcy.

For federal student loans, some options that can help alleviate the burden of student loan debt include deferment or forbearance, which may be helpful to those who are facing short-term issues repaying student loans. Another avenue to consider may be income-driven repayment plans, which tie a borrower’s monthly loan payments to their income, helping make monthly payments more manageable.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep

2023

What Is an IPO Pop?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

An IPO pop occurs after a company goes public, when its stock price jumps higher on the first day of trading.

No matter how much preparation they’ve done, company executives and shareholders never really know how a stock will perform once it hits the market through its initial public offering (IPO).

While they of course hope to see some increase in price, a big spike — or IPO pop — could indicate that the underwriters underpriced the IPO.

Key Points

• An IPO pop occurs when a company’s stock spikes on its first day of trading and may indicate that underwriters didn’t properly price retail investor demand into the IPO price.

• In 2021, IPOs saw increases of 40% on average on the first trading day, but in the second quarter, companies were pricing below their expected ranges.

• Direct listings are an alternative to IPOs that may help avoid an IPO pop, but they aren’t as efficient at raising capital.

• Buying IPO stocks can be profitable, but it’s important to research the company before investing and to consider broad market trends.

• IPO pops are relatively common, and larger companies tend to have larger pops since they are in high demand.

IPO Pop Defined

An IPO pop occurs when a company’s stock spikes on its first day of trading. An IPO pop may be a sign that underwriters did not properly price retail investor demand into the IPO price.

For instance, if a company prices its shares at $47 in its IPO and the price goes to $48 or $50, that would be considered a normal and positive IPO increase. But if the stock jumped to $60, both the company and its early investors might believe an error occurred in the IPO pricing.

This is one of the reasons that IPO shares are considered highly risky. In many cases, historically, that initial price jump hasn’t lasted, and investors who bought on the way up have taken a hit on the way down.

Recommended: What Is an IPO?

Problems Indicated by an IPO Pop

Many different factors go into pricing an IPO, including revenue, private investment amounts, public and institutional interest in investing. IPO underwriters try to find a share price that institutional investors will buy.

If the public thinks a company’s shares are more valuable than what early investors, underwriters, and executives thought, that means the company could have raised more money, increasing their own profit. Or they could have raised the same amount of money but with less dilution.

Also, when bankers price an IPO too low, that means their customers benefit — while company founders and VCs miss out on more profits.

If the share price soars on the first day, some investors will be happy, but it means the company could have raised more money if they had priced the stock higher from the start. It also means that existing investors could have given up a smaller percentage of their ownership for the same price.

IPO Trends

In the past, some companies have seen significant IPO pops occur on their first trading day. But in many cases the market cooled down after the first quarter, with some high-profile companies seeing declines on their first day.

Take 2021 as an example; in that year there were a record number of IPOs in the market.

In the first quarter of 2021 many companies were pricing their IPOs at the top of their expected range, due to increased demand, an improving economy, and a strong stock market. Even after that, IPOs still saw increases of 40% on average on the first trading day.

But in the second quarter, companies were pricing below their expected ranges and some weren’t even reaching those prices on the first trading day. This made the public less eager to buy into IPOs. This type of volatility is common to IPOs, and another reason why investors should be cautious when investing in them.

There was also a boom in special-purpose acquisition corporations (SPACs), IPOs of shell companies that go public with the sole purpose of acquiring other companies.

💡 Quick Tip: Access to IPO shares before they trade on public exchanges has usually been available only to large institutional investors. That’s changing now, and some brokerages offer pre-listing IPO investing to qualified investors.

Direct Listings

Some companies have turned to direct listings as a way to try to avoid an IPO pop. In a direct listing, the company doesn’t have an IPO, they just list their stock and it starts trading in the market. There is a reference price set by a market maker for the stock in a direct listing, but it isn’t nearly as important as the price of a stock in an IPO. Although this can help avoid an IPO pop, it is not as efficient as an IPO as a means of raising capital.

Setting a price for an IPO is a key part of that fundraising strategy. A newer strategy companies are trying is raising a large amount of private capital just before going public, and then doing a direct listing instead of an IPO. The process gives a valuation to the stock price but in a different way from pricing shares for an IPO.

A third strategy is to direct list, and then do a fundraising round some time after the listing, giving the public a chance to establish the market price for the stock.

Do IPOs Usually Go Up or Down?

Although stocks increase an average of 18.4% on their first day of trading, 31% of IPOs decrease when they start to trade. Calculations of IPO profits show that almost 50% of IPOs decrease from their day-one trading price on their second day of trading. While IPO investing may seem like a great investment opportunity, IPOs remain a risky and unpredictable asset class.

Average IPO First Day Return

IPO pops are relatively common. Sometimes average first day returns increase significantly, such as during the dot-com bubble when the average pop was 60%. Larger companies generally have larger pops, since they are in high demand.

Determining the Right IPOs to Invest In

Buying IPO stocks can be profitable, but it also has risks. Just because a company is well known or there is a lot of publicity around its IPO doesn’t mean the IPO will be profitable. As with any investment, it’s important to research the market and each company before deciding to invest.

It’s also important to be patient and flexible, as individual investors don’t always have the ability to trade IPO shares. Or investors may have access at some point after the actual IPO. In addition, IPO shares can be limited.

If you’re interested in upcoming IPOs, it’s important to keep in mind that IPOs increase in price on the first day but quickly decrease again, and almost a third of IPOs decrease on their first listing day. Popular IPOs are more likely to increase, but they are also crowded with investors, so investors might not see their orders fulfilled.

When investing in IPOs through your brokerage account, it’s important to look at broad market trends in addition to individual company fundamentals. When the market is strong, IPOs tend to perform better. Also, when high-profile companies have unsuccessful IPOs, investors may become more wary about investing in upcoming IPOs.

Each sector has different trends and averages. Generally tech companies have higher first day returns than other types of companies, even though they’re also often unprofitable. Investors still want in on these IPOs because they may have strong future earnings potential.

Historically, some of the most successful tech stocks started out with negative earnings, so low earnings are not a strong indicator of future success or failure.

The Takeaway

As exciting as an IPO pop can be, it’s another example of how hard it is for individual investors to time the market. First, there’s no way to predict if a newly minted stock will have a spike after the IPO. Sometimes there is a pop and then the price plunges. This is one reason why IPOs are considered high-risk events.

Investors who find IPOs compelling may want to assess company fundamentals and other market conditions before investing in IPO stock.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/Olemedia

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Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Sep

2023

What Is Yield to Call? Formula & Examples

By Samuel Becker | Growing Wealth, invest, Investing, Terminology | Comments Off

An investor calculating yield to call is getting an idea of how much their overall bond returns will be. Specifically, yield to call refers to the total returns garnered by holding onto a bond until its call date. That doesn’t apply to all bonds, naturally, but can be very important for many investors to understand.

For investors who utilize bonds — callable bonds, in particular — as a part of their investment strategy, having a deep understanding of yield to call can be critical.

What Is Yield to Call?

As mentioned, yield to call (often abbreviated as “YTC”) refers to the overall return earned by an investor who buys an investment bond and holds it until its call date. Yield to call only concerns what are called callable bonds, which are a type of bond option.

With callable bonds, issuers have the option of repaying investors the value of the bond before it matures, potentially allowing them to save on interest payments. Callable bonds come with a call date and a call price, and the call date always comes before the bond itself matures.

A little more background: in a YTC scenario, ”yield” refers to the total amount of income earned over a period of time. In this case, the yield is the total interest a bond purchaser has accrued since purchasing the bond.

How Yield to Call Works

If an investor buys a callable bond, they’ll see interest payments from the bond issuer up until the bond reaches maturity. The callable bond also has a call date, and the investor can choose to hold onto the bond until that date. If the investor does so, then YTC amounts to the total return the investor has received up until that date.

Yield to call is similar to yield to maturity, which is the overall interest accrued by an investor who holds a bond until it matures. But there are some differences, especially when it comes to how YTC is calculated.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Yield to Call Formula

The raw yield to call calculation formula looks like this:

Yield to Call Formula:

Yield to call = (coupon interest payment + ( The call price – current market value ) ÷ time in years until call date ) ÷ (( call price + market value ) ÷ 2)

An investor should have all of the variables on-hand to do the calculation. Before we run through an example, though, here’s a breakdown of those variables:

• Yield to call: The variable we are trying to solve for!

• Coupon interest payment: How much the bondholder receives in interest payments annually.

• Call price: The predetermined call price of the callable bond in question.

• Current market value: The bond’s current value.

• Time until call date: The number of years until the bond’s first call date arrives

The yield-to-call calculation will tell an investor the returns they’ll receive up until their bond’s call date. A bond’s value is roughly equal to the present value of its future earnings or cash flows — or, the return, at the present moment, that the bond should provide in the future.

How to Calculate Yield to Call

It can be helpful to see how yield to call looks in a hypothetical example to further understand it.

Yield to Call Example

For this example, we’ll say that the current face value of the bond is $950, it has an annual coupon interest payment of $50, and it can be called at $1,000 in four years.

Here’s how the raw formula transforms when we input those variables:

Yield to call = ($50 + ( $1,000 – $950 ) ÷ 4 ) ÷ (( $1,000 + $950 ) ÷ 2)

YTC = $25 ÷ $975

YTC = 0.0256 = 2.56%

Interpreting Yield to Call Results

Once we know that our hypothetical, callable bond has a yield to call of 2.56%, what does that mean, exactly? Well, if you remember back to the beginning, yield to call measures the yield of a bond if the investor holds it until its call date.

The percentage, 2.56%, is the effective return an investor can expect on their bond, assuming it is called before it matures. It’s important to remember, too, that callable bonds can be called by the issuer at any time after the call date. So, just because there is an expected return, that doesn’t necessarily mean that’s what they’ll see.

Yield to call calculations make a couple of big assumptions. First, it’s assumed that the investor will not sell the bond before the call date. And second, the calculation assumes that the bond will actually be called on the call date. Because of these assumptions, calculations can produce a number that may not always be 100% accurate.

Yield to Call Comparisons

Two calculations that are similar to YTC are “yield to maturity,” and “yield to worst.” All three calculations are related and offer different methods for measuring the value that a bond will deliver to an investor.

A different type of yield calculation would be needed if you wanted to try and measure the overall interest you’d earn if you held a bond to maturity. That’s different from measuring the overall interest you’d earn by simply holding the bond until its call date.

Yield to Call vs Yield to Maturity

YTC calculates expected returns to a bond’s call date; yield to maturity calculates expected returns to the bond’s maturity date. Yield to maturity gives investors a look at the total rate of return a bond will earn over its entire life, not merely until its call date (if it has one).

Yield to Call vs Yield to Worst

Yield to worst, or “YTW,” measures the absolute lowest possible yield that a bond can deliver to an investor. Assuming that a bond has multiple call dates, the yield to worst is the lowest expected return for each of those call dates versus the yield to maturity. Essentially, it gives a “worst case” return expectation for bondholders who hold a bond to either its call date or for its entire life.

If a bond has no call date, then the YTW is equal to the yield to maturity — because there are no other possible alternatives.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

The Takeaway

Learning what yield to call is and how to calculate it, can be yet another valuable addition to your investing tool chest. For bond investors, YTC can be helpful in trying to figure out what types of returns you can expect, especially if you’re investing or trading callable bonds.

It may be that you never actually do these calculations, but having a cursory background in what the term yield to call means, and what it tells you, is still helpful information to keep in your back pocket.

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FAQ

What is the advantage of yield to call?

Yield to call helps investors get a better idea of what they can expect in terms of returns from their bond holdings. That can help inform their overall investment strategy.

How do you calculate yield to call in Excel?

Calculating yield to call can be done the old fashioned way, with a pen and paper, or in a spreadsheet software, of which there are several. An internet search should yield results as to how to calculate YTC within any one of those programs.

Is yield to call always lower than yield to maturity?

Generally, an investor would see higher returns if they hold a bond to its full maturity, rather than sell it earlier. For that reason, yield to call is generally lower than yield to maturity.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Sep

2023

What Is a Candlestick Chart?

By MP Dunleavey | Growing Wealth, Investing | Comments Off

What Are Candlestick Charts?

Candlesticks are price chart units that show the high, low, opening, and closing prices of a stock or security within a specified time period. Overtime, the candles create patterns that traders can use to predict price movements, trends, and reversals.

Most candlesticks consist of a body and upper and lower wicks, which are also known as shadows or tails.

Candlestick charts are commonly used, along with line charts, bar charts, and point-and-figure charts.

Understanding Candlestick Charts

Candlesticks originated in Japan, perhaps in the 19th century, as a means of tracking the prices of certain assets and commodities. When candlestick charts were introduced in the West, they originally were called Japanese candlestick charts.

The candlestick itself consists of an open area called the “real body,” which shows the range between the open and close prices, with the price movements in the specified time period shown as vertical lines or wicks (also called shadows) on either end of the body. The wicks indicate the high and the low for that period.

When the real body is filled in with black or red it means the close was lower than the open. When it’s white (blank) or green, the close was higher than the open. On most platforms, traders can alter the colors to whatever is easiest for them to read. Some candlestick charts are black and white.

Traders can set the desired time period they want to analyze; often a candlestick represents the price movements during a trading day. Candlestick patterns are formed by a series of candles within a designated interval (e.g. days or weeks).

Candlestick Charts vs Bar Charts

Like candlestick charts, bar charts show security price changes over time. Many traders think candlestick charts are easier to read; the thicker candle bodies make it easy to see the distinction between the opening and closing price and the high and low.

Bar charts are also often not color coded, making it more difficult to see price trends. However, some traders prefer the cleaner aesthetic of a bar chart.

What Do Candlestick Charts Tell Investors?

Candlestick charts are composed of candles lined up next to one another, each of which shows price movement between the specified time period. Because candles show price changes in certain time periods, traders can use charts to see trends and try to predict price changes.

Candlestick patterns can show that a negative or positive price continuation is likely, or that a price trend may reverse. Even a single candlestick can help traders decide whether to buy or sell.

Some investors use fundamental analysis of an investment to make trading decisions. But that in-depth analysis is typically not of interest to a day trader.

Day traders often use what is called technical analysis in an attempt to detect patterns in a security’s performance. Although this method is common in the financial industry, many debate the validity of these patterns and whether they can be predictive, or help investors anticipate a security’s future performance in any way.

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How to Read Candlestick Charts

Owing to the four main components of a single candlestick — the opening price, closing price, the high and the low — candlestick charts convey a lot of information. Essentially you have five data points in each candlestick:

• The opening price (indicated by the top of the real body)

• The closing price (the bottom of the real body)

• The high (the upper wick)

• The low (the lower wick)

• Whether the day’s closing price was higher or lower than the previous close.

Components of a Candlestick

Real Body

As described above, the part of the candle between the top and bottom borders is called the candle body, or real body. This represents the opening and closing prices of the time period that the candle depicts.

The candle body is more important than the wicks or shadows, because the wicks show high and low trades, which may be significantly different from the majority of the day’s trades. A longer candle body shows a stronger price trend in either direction.

Upper Wick

The vertical line above the candle body is the upper wick or shadow. The top of the shadow the highest price the security was traded at during the set time period. A long upper shadow indicates a bearish price direction: It means traders are unsuccessfully attempting to increase prices.

Lower Wick

The line below the candle body is the lower wick. The bottom of the wick marks the lowest price of the security during the set time period. If a wick is short, it means the opening or closing price was near the high and low trades.

Range

The range is the difference between the top and bottom of the real body. If the close was lower than the open, the real body is filled in (usually black or red. If the close was higher than the open, the real body is hollow or green (or another color of the trader’s choice).

While these are the components of a traditional or standard candlestick chart, some candlestick charts have candles without a top or bottom or wicks.

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Candlestick Chart Time Frames

Traders can select the time frame that each candle represents. One commonly used time frame shows the opening price, closing price, and high and low for a single day. Each candle in the chart would show the price movement in one day.

A trader could see that a stock price declined significantly over the course of the day, which could result in a continuing decline in the coming days.

The most commonly used time frames are:

• 1-minute (M1)

• 5-minute (M5)

• 15-minute (M15)

• 30-minute (M30)

• 1-hour (H1)

• 4-hour (H4)

• Daily (D1)

• Weekly (W1)

• Monthly (M1)

Shorter time frames essentially allow traders to zoom in on the price action of the chart. For example, an H1 chart would have four times the candles of an H4 chart, so traders can look more closely at price changes.

Types of Candlesticks

Candlesticks are created by price movements throughout the specified time period. Taken as a cluster, candlesticks form patterns traders use for analysis and trend prediction.

Bearish and Bullish Candles

There are two main patterns: bearish (the security’s price is likely to decline) and bullish (the security’s price is likely to rise). These reflect the common terms for bullish and bearish market conditions.

No pattern is a guarantee of a price change or of a security’s performance. Candlestick charts are therefore used more as indicators of potential price trends.

Doji Candles

If the price closes exactly where it opened, there is no candle body. This is called a doji and is marked with a cross. A doji candlestick is rare, but when it shows up it can be a predictor of a price reversal.

Marubozu

The marubozu is essentially the opposite of the doji. It has a long candle body and no wicks or shadows. This type of candle indicates that the price didn’t trade beyond the range of the open and closing prices.

Types of Candlestick Patterns

Certain candlestick patterns can help traders make short-term predictions about price movements. Although a single candle indicates whether buying or selling action is strong, it doesn’t necessarily mean that the long-term price will continue in that direction. This is why traders look at different time periods to get a sense for longer-term trends, and to understand support and resistance levels.

There are many ways to read candlestick charts, depending on trading strategy and time frame.

At first glance, candlestick charts can appear pretty random. But there are many bullish and bearish patterns traders can identify in order to try to predict price movements. It’s important to remember that patterns are not guarantees of future price movement.

Bearish Engulfing Pattern

If there are more sellers than buyers when a chart has been trending upward, traders will see a long red candlestick after a small green one. This can indicate that prices may decline.

Bullish Engulfing Pattern

The opposite pattern will occur if the price is trending downward but then a long green candlestick appears in the chart. This may indicate that prices will continue to increase.

Bearish Evening Star

The evening star pattern is uncommon, but considered a strong indicator of future price declines when it does show up. It’s generally a three-day candlestick pattern.

• The first day is a large white or green candle, indicating a clear rise in price.

• The second day shows a smaller candle, indicating a more modest price increase.

• The third day is a long red candle that opens at a lower price than the previous day, and closes near the middle of the first candle’s range.

Morning Star

The reverse of the evening star is the morning star, a bullish indicator. The first candlestick in this pattern is long and red, the second is short and lower than the first, and the third is a long green candlestick that closes above the center of the first, indicating an upward price trend.

Bearish Harami

This is a two-candle pattern. If traders see a small red or black candle body that fits completely within the previous day’s candle body, it could indicate a price reversal. Price action continuing downward after the small candle could indicate a longer-term downward trend.

Bullish Harami

A bullish harami is a three-day pattern that may indicate a reversal of a bearish trend. If there are two black or red candles, indicating the downward trend, followed by a small white or green candle that fits completely within the body of the previous candle, that may signal a bullish turn.

Harami Cross

The harami cross can be bearish or bullish. With a bearish harami cross, there is a long candle that’s part of a downtrend and it’s followed by a doji.

With a bullish harami cross, there is a long candle that’s part of an upward trend, also followed by a doji.
In either case, the doji could signal a reversal of the trend.

Falling Three Methods

This is a bearish pattern that includes five candlesticks. Typically there is one day with a strong downward trend, followed by three small green candle bodies that stay within the boundaries of the first candle, followed by another long red candle. The falling three methods may signal an interruption of the trend, but not a full-on reversal.

Hammer

If the price significantly decreases but then makes a comeback and ultimately closes near the high, this is called a hammer. The hammer pattern has a small body and a long lower wick. It’s a bullish signal because it shows that the price was declining but then traders pushed it back up.

Hanging Man

The hanging man pattern is the opposite of the hammer. It is also referred to as an inverted hammer. This pattern looks like a square lollipop. If traders are attempting to spot the top or bottom of a market, they often use hammer and hanging man patterns as indicators.

Shooting Star

A shooting star takes shape when a security opens, the price rises significantly over the trading period, but then closes near the opening price, signaling a reversal.

To really be considered a shooting star pattern, this particular candlestick — with the short real body, long top wick, and hardly any bottom wick — must occur within an upward price trend.

Gaps

A gap is a window of time in which there are no trade transactions. Gaps in a chart can indicate support and resistance levels, which can be followed by a further bullish or bearish trend.

The Takeaway

Candlestick charts are a way of condensing price information about a security into a fairly simple diagram that looks like a candle with two wicks. The candle’s “real body” shows the range between the open and close prices. The wicks are the vertical lines at the top and bottom of the real body, indicating the high and the low for that period.

Candlesticks can be grouped together into patterns that traders can interpret as signals of price trends that are either bearish or bullish. Often it’s best to use tools like this with other types of technical indicators.

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How to Read Candlestick Charts

Components of a Candlestick

Real Body

Upper Wick

Lower Wick

Range

Candlestick Chart Time Frames

Types of Candlesticks

Bearish and Bullish Candles

Doji Candles

Marubozu

Types of Candlestick Patterns

Bearish Engulfing Pattern

Bullish Engulfing Pattern

Bearish Evening Star

Morning Star

Bearish Harami

Bullish Harami

Harami Cross

Falling Three Methods

Hammer

Hanging Man

Shooting Star

Gaps

The Takeaway

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