Helping individuals and small business improve their financial futures through sound financial planning and investing.
The SEC has amended the trade settlement time for buying and selling securities on the open exchanges. What does that mean? Faster cash from your investments, the good and the bad! Prior to 2017, any time you placed a trade to buy a stock, bond, mutual fund, ETF, etc., you would need the cash available to cover the cost of the trade(s) within 3 days of placing the trade. This was referred to as "T+3" (i.e. - Trade date, plus 3 days). Likewise, if you needed the cash from selling a security, it would take 3 days for the cash to settle in your account after placing the trade. In 2017, the rule was amended by the SEC to T+2. Look out day traders! The rule was amended again and, as of May 28th, you can expect T+1 trade settlement with your preferred broker. The Good: After May 28th, you'll be able to access your cash from trades more quickly. No more waiting 2 days to send money from your brokerage account to your bank. For those procrastinators who need this cash to pay bills, buy a car, etc., you're in luck. You get to wait one more day to pull the trigger. In accounts such as IRAs, where margin borrowing is not available, you'll also be able to reinvest the proceeds from sales much quicker and avoid Good Faith Trading Violations. The Bad: Borrowing stocks on margin isn't cheap. Whether you're buying more shares than you have cash for or selling short, your investment strategy has to earn you more than the cost of borrowing on margin. In today's interest rate environment, that could be as high as 13-15%. With the new T+1 settlement rule, brokerages get to start charging you interest a day earlier. It may not seem like much on a daily rate, but it adds up fast. Bad behavior can get worse. While being able to trade faster in IRAs may seem like a good idea, there is plenty of evidence to show that most investors underperform relative indexes (especially the S&P 500). Faster trading might lead to worse results if you're not careful. Doing so in an IRA could have a more dramatic impact on your retirement plan and offset the tax benefits of using those types of accounts. Want to learn more about how this impacts you? Give me a call or visit our website to schedule a time to meet. https://lnkd.in/gNvK3nqU