This is an area I know very little about, and wasn't even aware of it until I stopped 401K/IRA investing and began short-term trading through a low-cost brokerage. Delays are built into the system that seems suspiciously long in our computerized age. Say you open a trading account and put $10000 into it. You then invest $9000 into a stock which grows to $15000. Then you see a better opportunity come along and you sell your $15000 stock to get cash for the next investment. Question: how much money do you now have to invest? Answer: $1000, at least for a couple of days. It can take up to FIVE DAYS for 'settlement' to occur before that money shows up in your account, ready to trade. If the US Treasury is concerned "settlement risks could also potentially impair Treasury’s ability to fund government expenditures", it sounds like their main source of cash is selling their investments in the market, and they're concerned in a crunch they're not going to get through settlement in time. Maybe SLL or someone else in the know can chime in here. Why is the government investing in the market at all? I think we all know the answer to that one. But this implies the percentage of available govt money devoted to the task is at an insane level if they are concerned about "settlement risk".
Thank you for explaining that. I know ZERO about this sort of thing. I have a good sized 401K through my job but I do not expect it to be worth anything in the future. Problem is I cant touch it until I retire (which will be the day I die) or if I get fired.
In most instances you can, there are just penalties for doing so.
One thing that you can likely do is take a loan out against the 401(k). It is probably limited to 50% of balance maxing out at some $X and you'll have to pay it back with interest (interest to yourself, by the way, so you're not losing anything other than the potential growth had you left it in the fund).
In the 90s and 00s settlement took several days, but USAA allowed me to reinvest the money from selling stock before settlement. So I'd sell Stock A, buy Stock B, and three days later the money would appear in the sweep account and then be used to cover the Stock B purchase three days earlier.
Yes - I believe if this happens you are considered to be receiving a loan from your broker, and when there's a lot of this going on it compounds the settlement risk.
"I believe if this happens you are considered to be receiving a loan from your broker, and when there's a lot of this going on it compounds the settlement risk" I never understood the nuts and bolts of it. I don't understand the risk that exists between the stock being sold and settlement day.
"...the Big Bang of 1986 led to an explosion in the volume of trades, and settlement delays became significant. In the market crash of 1987, many investors sought to limit their losses by selling their securities, but found that the failure of timely settlement left them exposed."
If the US Treasury is concerned "settlement risks could also potentially impair Treasury’s ability to fund government expenditures", it sounds like their main source of cash is selling their investments in the market, and they're concerned in a crunch they're not going to get through settlement in time. Maybe SLL or someone else in the know can chime in here. Why is the government investing in the market at all? I think we all know the answer to that one. But this implies the percentage of available govt money devoted to the task is at an insane level if they are concerned about "settlement risk".
One thing that you can likely do is take a loan out against the 401(k). It is probably limited to 50% of balance maxing out at some $X and you'll have to pay it back with interest (interest to yourself, by the way, so you're not losing anything other than the potential growth had you left it in the fund).
I never understood the nuts and bolts of it. I don't understand the risk that exists between the stock being sold and settlement day.
http://en.wikipedia.org/wiki/Settlement_...)
"...the Big Bang of 1986 led to an explosion in the volume of trades, and settlement delays became significant. In the market crash of 1987, many investors sought to limit their losses by selling their securities, but found that the failure of timely settlement left them exposed."