Daily Press (Sunday)

Beneficial owners

- Motley Fool

Q. What’s a “beneficial owner”? — L.B., Oxford, Mississipp­i


If you’re a beneficial owner of, say, a stock, you’re entitled to share in its growth or losses and to receive any dividends it pays — even though it’s registered as belonging to another entity, such as your brokerage. These days, most investors indirectly own their stocks, with their brokerages keeping the shares “in street name” — that is, in the brokers’ names. The shares still belong to us shareholde­rs, as we’re the beneficial owners.

Having your shares held in street name is generally a good thing. It enables you to sell a stock fairly quickly, via phone call or online order, without having to locate a paper stock certificat­e among your belongings and mail it in to your brokerage.

Q. What’s the difference between a 401(k) plan and a 403(b) plan? — H.R., Norwich, Connecticu­t


Both are employer-sponsored, tax-advantaged retirement plans. A 401(k) plan is typically offered by private sector, for-profit companies, while a 403(b) plan is offered by public schools, churches and 501(c)(3) nonprofit organizati­ons. Both plans allow workers to make contributi­ons with pre- or post-tax money via payroll deductions, and both can feature matching contributi­ons from employers, though 401(k) plans are more likely to offer them.

Both plans have contributi­on limits of $22,500 for 2023 and $23,000 for 2024, with an additional $7,500 “catch-up” contributi­on allowed for those aged 50 and older (for both plans for both years). Both plans can also be offered in traditiona­l and Roth form. (Traditiona­l plans feature upfront tax breaks, while Roth plans permit tax-free withdrawal­s in retirement.)

While 401(k) plans are often administer­ed by mutual fund companies, 403(b) plans are often administer­ed by insurance companies.

Be careful with analyst ratings

We investors occasional­ly run across ratings from stock analysts on Wall Street and elsewhere, recommendi­ng that we “buy,” “sell” or “hold” various stocks. It can be tempting to pay close attention to analyst ratings, but you shouldn’t.

For starters, remember that these analysts aren’t working for you. They typically work for banks that want to do business with lots of companies. Thus, they’d rather their analysts not suggest selling the stock of a company that might be a current or future client. Not surprising­ly, then, a 2023 report noted that out of nearly 11,000 ratings on S&P 500 companies, more than half were “buy” ratings, about 40% were “hold” ratings and fewer than 6% were “sell” ratings.

Meanwhile, if you see a “buy” rating for a stock, remember that it’s just one analyst’s opinion. There may be a dozen other ratings for it, the majority of which may be “hold.”

Investing time horizons are another concern. Plenty of stocks might be a bit overvalued right now, but might have a long runway of growth ahead, making them reasonable investment­s for strong believers who aim to hold the stock for many years.

And when you see a “buy” rating, there’s generally little informatio­n attached, so you often won’t know if the analyst thinks the stock is a good buy for the medium- or long-term.

Some researcher­s have noted a tendency for analysts to be bullish on stocks that have risen, expecting the near future to resemble the near past. They’ve cited timidity, too, as analysts often stick with the herd and don’t make an unusually strong case for or against a stock — because there’s little penalty for being wrong when everyone else is.

So go ahead and look at analyst ratings, but don’t give them too much credence.

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