# Understanding Binary Options

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Binary options are a simplified form of options trading. Options trading can be a little difficult to understand, but essentially when you trade options, you are buying or selling contracts that give you the right, or the obligation, to make certain asset trades in the future. Binary options remove much of this complexity, allowing you to bet on whether the value of an asset will be higher or lower than a target price by a given deadline. Simple, right? Let’s take a closer look at how binary options work and whether they make sense for your trading strategy.

### What are binary options?

Binary options — like all options — are a financial instrument based on the value of an underlying asset. This underlying asset can be a stock, a bond, a currency exchange rate or the price of gold. When you buy or sell binary options, you’re making a bet about the future price of the underlying asset.

Let’s say the price of gold right now is \$1,450 an ounce, and you think it will be higher than \$1,500 by the end of the week. You could buy a binary option with a strike price of \$1,500 and a deadline of Friday at 5:00 p.m. If the price ends up higher than \$1,500 on Friday at 5:00 p.m., you would make money. If the price ends up at \$1,500 or lower, you lose money.

### How are binary options priced?

Binary options are priced between \$0 and \$100. Their value is based on how likely the underlying asset will be above the strike price by the option deadline. If the actual value of the asset is above the strike price at the deadline, then the option is worth \$100. If it’s below the price, then the option is worth \$0.

Before the deadline, the value of the option will fluctuate between \$0 and \$100, depending on how likely the final result looks. If it looks very likely that the final price will be above the strike price, then the option price will be closer to \$100. If it looks unlikely, the price will fall closer to zero. If you own a binary option and want to get out before the expiration date, you can sell the contract to another investor at the current market price.

### How do you buy and sell binary options?

When it comes to binary trading, you can be either a buyer or a seller. Let’s go back to the example of gold going up to a value of \$1,500. Imagine that the option currently trades at \$45 — that means you’d pay \$45 to bet that the price will end up higher than \$1,500 by the deadline. If the price ends up higher, you’ll receive \$100, giving you a profit of \$55 (100 – 45 = 55.) If the price ends up at or below \$1,500, your option value falls to \$0, meaning that you’d lose your \$45 investment.

On the other hand, if you think the price of gold will not be above \$1,500, you could take the opposite position by selling the \$45 option to another investor. This person would give you the money upfront, and if the price ends up below \$1,500, you keep the \$45 profit. If the price ends up above \$1,500, you need to pay the option buyer \$100, so your loss is \$55.

### Where can you trade binary options?

Since binary options are a newer, more specialized type of investment, you won’t find them with just any online stock broker. One way to make these investments is through the North American Derivatives Exchange (Nadex). This exchange is supervised by the Commodity Futures Trading Commission, a government regulatory agency.

There are other online websites that allow binary option trading, such as Binary.com and IQ Option. But Braden Perry, a former enforcement attorney at the Commodity Futures Trading Commission (CFTC), warns you have to be careful.

“Many internet-based platforms have surged into the market, and with that surge, the opportunity for fraudulent promotional schemes, overstatement of returns, and the failure to pay out for the wins have increased,” said Perry. “Furthermore, some actors are using manipulative software to rig the system, so winning bids end up losing.”

As he recommends, before opening an account with a website, you should check their registration and disciplinary history through BrokerCheck or the Background Affiliation Status Information Center, two databases run by regulatory agencies. You could also perform web searches to determine if your potential broker has been accused of wrongdoing.

### What are the fees for trading binary options?

The fees for trading binary options depend on the broker or trading platform. They may charge a flat transaction cost, like \$1 for each contract that you buy or sell. They might also charge a fee when they pay out the \$100 earnings at a contract’s expiration deadline, known as a settlement fee. Once again this could be \$1 per contract, charged to the investor who made the correct bet on the option.

Another way brokers can make money is by using a bid-ask spread, which means the price to buy an option is higher than the price to sell an option. For example, it costs \$45 to buy but you would only receive \$43 by selling. The \$2 difference goes to the broker or the trading platform.

Finally, the broker/platform could charge additional miscellaneous fees for other actions, such as setting up your account or processing withdrawals.

• Simple to understand: Binary options are pretty straightforward compared to other options trading strategies — either your price prediction comes true and you make money, or it doesn’t and you lose money.
• Fixed risk: Going into each trade, you can calculate exactly what your loss would be in the event that your prediction was wrong. With some other trading strategies, like short selling a stock, your possible loss is potentially unlimited; with binary options, it’s a fixed risk.
• Higher potential returns: Investing is generally a tradeoff between risk and return, where higher risk investments tend to have a higher potential return. Since binary options can be relatively risky, they are also potentially lucrative. Due to the higher risk the typical returns on investments are much higher than foreign exchange trading — typically 60% to 90%, compared to 10% for forex.

### Downsides of binary options

• High risk: With the “all-or-nothing” payout system, you can lose money very quickly when trading binary options if your predictions turn out badly. This simplicity may be a downside for new investors, who could lose a lot of money through inexperience.
• Bad market actors: You need to be careful about which trading platform you use. Binary options are a relatively new investment and still not regulated as closely as more established markets, so the opportunity for fraud can be higher.
• Broker limitations: There could be limits on how much you can invest per trade. Only some brokers allow big investments, restricting them to clients with large balances. If you want to make larger investments, you may need to sign up with multiple platforms as you could go over the maximum limit on just one.

### Who should trade binary options?

Binary options are a better fit for investors with a high-risk tolerance, those more willing to lose money in the short-term in exchange for making a larger profit in the future. If you’re scared about the idea of short-term losses, binary options are likely not a good fit.

In addition, you need to be willing to put in lots of research for your binary option trading decisions. You are competing against other investors, including Wall Street professionals, who are only accepting your buy/sell moves because they bet the opposite will happen and they’ll make money off you. It’s a tough market and takes hard work to make a profit.

Even if binary options sound like a good fit for your personality, Nicholas Hofer, a CFP® and President of Boston Family Advisors, still believes you should think twice before getting started: “I wouldn’t recommend this strategy for traditional investors as it’s more like gambling.”

He thinks binary options are a misuse of what options should be used for, as a hedge against risk and losses. “Unfortunately,” he noted, “‘hedging’ is now often viewed as a way to generate alpha [above market returns] rather than a way to reduce risk.”

If you’d like more help to learn about binary options, there are online courses and bootcamps that can give you trading strategies and tips. You could also hire a financial advisor to help set up your options trading account and give you recommendations for trades.

The complicated part is not understanding how binary options work, but rather how to make good predictions. That means studying up on market trends, closely following financial news and learning everything you can about potential trades so you can make better predictions than the average investor.

If you do decide to move forward with trading binary options, make sure to do so responsibly — only invest money you can afford to lose. With research and some luck, you can make money quickly through binary options trading. But if you aren’t careful, you can lose it just as fast.

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# SIMPLE IRA Contribution Limits 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SIMPLE IRAs are tax-advantaged retirement savings accounts that benefit small business owners and the people who work for them. In addition, you can use the SIMPLE IRA to save for retirement if you are self-employed. Like many other retirement savings vehicles, SIMPLE IRAs are subject to annual contribution limits.

### SIMPLE IRA contribution limits

The annual SIMPLE IRA contribution limits for employees and employers in 2020 are as follows:

Annual SIMPLE IRA Contribution Limits

Employees under the age of 50

\$13,500

Employees 50 years and older

\$13,500, plus \$3,000 in catch-up contributions

Employer matching contributions

Up to 3% of employee’s salary

Employer non-elective contributions

2% of the employee’s salary

### SIMPLE IRA contribution limits 2020 for employees

For 2020, the amount employees may contribute to a SIMPLE IRA plan is capped at \$13,500 per year. That’s an increase from 2019’s limit of \$13,000, and an even bigger leap from the \$12,500 limit imposed from 2015 to 2018.

It’s worth noting that for employees who are also participating in other employer-sponsored retirement plans, such as 401(k) or 403(b) plans, aggregate annual contributions to all plans cannot exceed \$19,500 in 2020. For those 50 and older, the overall annual limit for catch-up contributions is \$6,500 for 2020, for a total ceiling of \$26,000.

### SIMPLE IRA contribution limits 2020 for employers

If a small business owner chooses to offer a SIMPLE IRA plan, they are required to make contributions to their employees’ accounts. They may choose to either match their employees’ contributions, up to a certain limit, or make non-elective contributions.

If an employer chooses matching contributions, their match is capped at 3% of an employee’s annual compensation. While an employer can make matching contributions of less than 3%, the match cannot be less than 1% of the employee’s annual compensation — and it cannot be less than 3% for more than two out of five consecutive years.

If an employer chooses non-elective contributions, they are required to put money into their employees’ SIMPLE IRAs regardless of whether the employees themselves make contributions. With non-elective contributions, the employer must make fixed contributions of 2% of their employees’ compensation. For 2020, the maximum amount of an employee’s total compensation that can be considered for calculating a non-elective contribution is capped at \$285,000, up from 2019’s cap of \$280,000.

### What are the contribution deadlines for a SIMPLE IRA?

Employers are required to deposit their employees’ SIMPLE IRA contributions within 30 days after the end of the month in which those contributions were withheld. Employers are required to make their matching or non-elective SIMPLE IRA contributions by their tax return filing deadline, including extensions.

For people who are self-employed, the deadline for depositing SIMPLE IRA contributions for a calendar year is 30 days after the end of year, or Jan. 30.

### SIMPLE IRA contribution limits vs. Roth contribution limits

While SIMPLE IRA contributions are capped at an annual limit of \$13,500, annual Roth IRA contribution limits are much lower. For 2020, Roth IRA contributions are capped at \$6,000, with an additional \$1,000 allowed for catch-up contributions for those 50 and older.

Another differentiating factor of Roth IRAs is that they have income phaseout limits. Depending on how much you make, you may be limited to how much you can contribute or whether you can contribute at all. For 2020, single filers cannot contribute to a Roth IRA if they make more than \$139,000, and if married and filing jointly, you’re only able to contribute if you earn less than \$206,000.

### Can you contribute to both a SIMPLE IRA and a Roth IRA?

You can contribute the maximum allowed amounts to both a SIMPLE IRA and a Roth IRA, as their contribution limits are not cumulative. In fact, most financial advisors recommend you max out both your SIMPLE IRA and Roth IRA if you can afford to do so, as they offer different tax benefits.

While SIMPLE IRA contributions are made pre-tax, and therefore lower your taxable income, your Roth IRA contributions are made with after-tax dollars, so qualified distributions are tax-free.

“Advisors talk about diversification all the time, and usually they are talking about stocks and bonds,” said Gregory Kurinec, a certified financial planner with Bentron Financial Group in Downers Grove, Ill. “But investors will want to diversify their accounts into different tax categories as well. By having a combination of pre-tax (SIMPLE IRA), after-tax advantage (Roth IRA) and non-qualified, this will allow the investor to pick and choose which account to take funds from to best impact their tax situation.”

### What is a SIMPLE IRA?

A SIMPLE IRA is an effective retirement savings match plan, especially for small business owners. SIMPLE IRAs are available to small businesses with 100 employees or fewer.

SIMPLE IRAs require employers to make contributions on behalf of their employees, either up to 3% of their employee’s compensation as an employer match or a flat 2% of the employee’s compensation.

As with most financial products, when it comes to saving for your golden years, a SIMPLE IRA is just one of the many options available to you. Explore all of the options at your disposal when deciding how to build your nest egg.

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# Review of Altfest Personal Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Altfest Personal Wealth Management is an investment management firm based in New York City. The firm typically only accepts clients with a minimum investment of \$1 million. For these high net worth clients, Altfest Personal Wealth Management provides customized investment portfolios with comprehensive financial planning services. The firm has 16 employees who provide investment advisory services, and currently oversees \$1.21 billion in assets under management (AUM).

All information included in this profile is accurate as of February 10th, 2020. For more information, please consult Altfest Personal Wealth Management’s website.

 Assets under management: \$1,210,000,000 Minimum investment: \$1 million (waivable at the firm’s discretion for young professionals) Fee structure: A percentage of AUM, ranging from 0.50% to 1.40%, depending on account size; hourly fees; fixed fees Headquarters: 445 Park Avenue Sixth Floor New York, NY 10022 www.altfest.com 212-406-0850

### Overview of Altfest Personal Wealth Management

Dr. Lewis Altfest launched Altfest Personal Wealth Management in 1983. He is still the majority owner of the firm and acts as CEO. He runs the organization along with his wife, Dr. Karen Altfest, the firm’s executive vice president, and their son, Andrew Altfest, the firm’s president. Both Lewis and Karen hold Ph.Ds; Lewis is an associate professor of finance at Pace University.

Including the Altfests, the firm has 37 total employees, 16 of whom provide investment advisory services. Altfest Personal Wealth Management specializes in creating customized, actively managed investment portfolios for high net worth clients. The firm and the Altfest family have won numerous awards for their performance, and both Lewis and Karen are regular contributors to financial news programs and publications.

### What types of clients does Altfest Personal Wealth Management serve?

Altfest Personal Wealth Management primarily works with individual investors. A client usually needs a portfolio of at least \$1 million to open an account with the firm — however, Altfest does make exceptions to this account minimum for “young professionals” who they believe will become high net worth clients in the future. The firm’s individual client base is currently split 40/60 between individuals and high net worth individuals, with the SEC defining high net worth individuals as those with at least \$750,000 under management or a net worth of at least \$1.5 million.

While the firm works with a diverse range of clients, it specializes in advising women, executives and healthcare professionals. In addition to individual investors, Altfest Personal Wealth Management also works with pension plans, profit-sharing plans, trusts, estates, corporations and other business entities.

### Services offered by Altfest Personal Wealth Management

Altfest Personal Wealth Management specializes in investment management and financial planning. However, the firm’s investment management services are available to individuals and small businesses only; these services are not offered to investment companies, pooled investment vehicles, large businesses and institutional clients.

Most of the firm’s investment accounts are run on a discretionary basis, meaning that Altfest Personal Wealth Management advisors can make trades on behalf of the client. The firm does have a few nondiscretionary accounts, where the client must approve all trades themselves.

If a client only wants a few investment recommendations, rather than the management of their entire portfolio, the firm can provide this service as well.

Altfest Personal Wealth Management also offers comprehensive financial planning, as many of its advisors hold the certified financial planner (CFP) designation, a professional certification for financial planners. The firm’s financial planning services include the creation of a detailed financial plan outlining the necessary steps to achieve their goals and objectives. The plan can address specific areas, such as college savings, estate planning and debt management.

More specifically, Altfest’s services include:

• Investment advisory services and portfolio management (mainly discretionary but some non-discretionary)
• Financial planning
• Retirement planning
• Trust and estate planning
• Charitable planning
• Education planning
• Tax planning
• Cash flow forecasting
• Budgeting and strategic planning
• Long-term care planning
• Debt management
• Divorce planning
• Insurance and risk management
• Workshops and seminars

### How Altfest Personal Wealth Management invests your money

Altfest Personal Wealth Management builds unique, customized portfolios for each client based on their time horizon, risk tolerance, income level and long-term goals.

As part of this analysis, the firm follows a system called Total Portfolio Management. Rather than only looking at a client’s investment history, the firm also gets to know their entire financial plan, including income, debts, spending requirements and future earnings potential. The firm uses this information to finetune a portfolio comprised of stocks, bonds, mutual funds, ETFs and private funds.

Altfest Personal Wealth Management follows an active investment approach: this means the firm is regularly trading in an attempt to earn above-average portfolio returns.

### Fees Altfest Personal Wealth Management charges for its services

For portfolio management services, Altfest Personal Wealth Management charges a fee based on a percentage of assets under management, with the rate ranging from 0.50% to 1.00%, depending on the size of the client’s portfolio. Altfest does not charge trading commissions or performance-based fees.

Portfolio Size Annual Asset-Based Fee
First \$3 million* 1.00%
Between \$3,000,001 and \$6,000,000 0.75%
Over \$6,000,000 0.50%
*If a portfolio falls below \$2 million in value at the end of the quarter, the firm will assess an additional 0.10% fee on top of the asset-based fee listed above.

For “young professional” clients who don’t meet the firm’s portfolio minimums, Altfest charges the following fee schedule:

• In the first year, the firm charges an annual fee of either 1.10% of assets under management or \$2,500 whichever is greater.
• After the first year, the firm charges 1.10% of the portfolio value or \$1,500 per year whichever is greater.

This rate includes cash flow analysis, investment analysis, investment management and 401(k) recommendations. Clients who want additional financial planning services will be billed at a rate of \$250 per hour.

If a client only wants standalone investment recommendations, Altfest Personal Wealth Management charges either an hourly fee ranging from \$500 to \$800 an hour, or a fixed fee of at least \$3,500 for specific investment recommendation requests.

Finally, some of the investments included in Altfest’s portfolio recommendations may carry additional fees. Clients are responsible for covering these costs, though the money won’t go to Altfest Personal Wealth Management.

### Altfest Personal Wealth Management’s highlights

• Wide range of awards: Over the past few years, Altfest Personal Wealth Management has been recognized as a top investment advisor by publications including Barron’s, Forbes, Financial Times and Financial Advisor magazine.
• Highly educated management team: The heads of the firm, Dr. Lewis Altfest and Dr. Karen Altfest, both hold Ph.Ds; Lewis is also an associate professor of finance at Pace University. In addition, many of the financial advisors at the firm hold the CFP designation.
• Customized investment approach: Altfest Personal Wealth Management designs a customized portfolio for every client, tailored to their specific needs, and don’t lump people into one-size-fits-all funds as some firms may do.
• Extensive financial planning in addition investing: Altfest Personal Wealth Management also specializes in financial planning. When the firm creates a portfolio recommendation, it goes over a client’s entire financial situation before designing the portfolio, not just their existing investments.
• Specialty in advising women, executive and healthcare clients: The firm specializes in advising women, executives and professionals in healthcare. Additionally, Forbes named Dr. Karen Altfest one of the top women advisors in the country in 2017, 2018 and 2019.

### Altfest Personal Wealth Management’s downsides

• Above-average investment fees: Altfest Personal Wealth Management charges an annual 1.00% asset-based fee on the first \$3 million in a client’s account (plus an additional 0.10% per quarter if their portfolio value falls below \$2 million). In comparison, the median investment management fee charged by firms for accounts over \$2 million is 0.75%, according to Kitces.
• High minimum to open an account: It takes at least \$1 million to open an account with Altfest Personal Wealth Management. While the firm does waive the minimum at its discretion for “young professionals,” the typical investor would need to be quite wealthy to make use of the firm’s services.
• Only has one location in New York City: The only way to visit the Altfest Personal Wealth Management office in person is in New York City, the firm’s only location.

### Altfest Personal Wealth Management disciplinary disclosures

Whenever an SEC-registered firm or its employees or affiliates face disciplinary action, including a criminal charge, a regulatory infraction or a civil lawsuit, the firm is required to report that incident in its Form ADV, paperwork filed with the SEC. Altfest Personal Wealth Management reports in its Form ADV that it has faced no such incidents over the past 10 years, indicating a clean disciplinary record.

### Altfest Personal Wealth Management onboarding process

To start the onboarding process with Altfest Personal Wealth Management, you can request a free consultation with one of its advisors. You can contact the firm either by phone at 212-406-0850, by email at [email protected] or by filling out a form on the firm’s website. As part of the onboarding form, the firm asks you to share your story, which helps the firm start determining whether you are a good fit based on your income and profession.

If it seems like a good match, the firm’s advisors will then get to work designing your customized investment portfolio based on your goals, risk tolerance and overall financial situation. When you’re ready to launch, the firm’s advisors would then take care of opening your new accounts, transferring over your existing accounts, making the necessary investments and keeping up with the records for your portfolio.

### The bottom line: Is Altfest Personal Wealth Management right for you?

If you’re a high net worth individual or a young professional who wants personalized investment recommendations combined with financial planning, Altfest Personal Wealth Management could be a good choice. This may be especially true if you are in one of the firm’s specialty client categories: women, executives and healthcare professionals. Since Altfest Personal Wealth Management only has one location in New York City, however, the firm might be a better choice if you live in the Northeast rather than other parts of the country.

On the other hand, Altfest Personal Wealth Management’s comprehensive services do not come cheap. The firm’s fees are higher than average, and you’d need at least \$1 million to open an account (unless Altfest waives the minimum because you’re a young professional). If you want a simpler investment strategy or prefer to manage your portfolio more on your own, you could find less expensive advisors than Altfest Personal Wealth Management.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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