WHAT IS
How to
use beta
When you invest money, be prepared to encounter bumps along the way. The stock market moves up and down all the time, but the individual stocks that comprise the market all move at different paces.
Some might have higher highs and lower lows, and others might move in nearly identical fashion to the market as a whole.
Will a stock feel like a roller-coaster ride? Or will it feel more like you’re driving on a highway at the same pace as the car next to you? Its beta can offer helpful cues.
Do all of the dollars from my OASDI tax go to Social Security?
What percentage of my paycheck is taken out for the OASDI tax?
If I'm self-employed, does that mean I don't pay the OASDI tax?
So if I earn over $142,800, I won't have to pay toward social security?
Can I get out of paying the OASDI tax?
What is the OASDI tax?
Do all of the dollars from my OASDI tax go to Social Security?
History can hold important lessons
Beta does take into account a sizable chunk of data. With at least 36 months of measurements of the stock’s ups and downs relative to the market, you’ll have a good idea of what the road thus far has looked like for other investors.
Numbers
don’t lie
Do all of the dollars from my OASDI tax go to Social Security?
Close but not quite. Eighty-five cents of each dollar that goes to OASDI is put into a trust fund that pays monthly benefits to current retirees and their families and to surviving spouses and children of workers who have died, according to the Social Security Administration.
What Is the OASDI Tax?
About 15 cents goes to a trust fund that pays benefits to people with disabilities and their families. The reason that it's "about 15 cents" is that a tiny bit of what's left over — less than a penny from each dollar you contribute — goes toward managing the Social Security program.
Do all of the dollars from my OASDI tax go to Social Security?
You’re looking in the rearview mirror
What percentage of my paycheck is taken out for the OASDI tax?
"Employees pay 6.2% of their wages and employers pay a matching 6.2% for a total of 12.4% that is sent to the federal government," says Katelyn Magnuson, founder of The Freelance CFO LLC, an accountancy for freelancers.
What Is the OASDI Tax?
About 15 cents goes to a trust fund that pays benefits to people with disabilities and their families. The reason that it's "about 15 cents" is that a tiny bit of what's left over — less than a penny from each dollar you contribute — goes toward managing the Social Security program.
What percentage of my paycheck is taken out for the OASDI tax?
If I'm self-employed, does that mean I don't pay the OASDI tax?
Well, yes and no. Technically, you don't (payments don't automatically come out of the checks or direct deposits you are sent). But you're supposed to pay the OASDI tax. You're supposed to pay the 12.4% yourself.
If you don't pay those taxes, you'll owe back taxes. There's really no way out of this.
What Is the OASDI Tax?
About 15 cents goes to a trust fund that pays benefits to people with disabilities and their families. The reason that it's "about 15 cents" is that a tiny bit of what's left over — less than a penny from each dollar you contribute — goes toward managing the Social Security program.
If I'm self-employed, does that mean I don't pay the OASDI tax?
But I have to pay 12.4% for my self-employment taxes and not 6.2%. Am I being punished for being self-employed?
It sounds that way, but no, not really. Magnuson explains it this way:
"If you're self-employed, you're able to claim the employer portion (6.2%) as a deduction to help even the playing field. OASDI is paid on wages up until you earn $142,800," she says.
She adds that $142,800 is for 2021. It changes every year. Last year, self-employed taxpayers paid 12.4% of their income to the OASDI tax up to $137,700.
What Is the OASDI Tax?
"After that point, you and your employer are off the hook for that 12.4% tax on any income earned above that amount," Magnuson says, adding: "This is also part of the reason that many solopreneurs/single member LLCs choose an (S-corporation) election once they hit a certain income threshold. Because OASDI is only paid on earned wages, S-corps only pay it on the wages reported on their W-2s, and then they don't pay the tax on the distributions they take from their company. Whereas a sole proprietor or single member LLC will pay that 12.4% tax on all income up until that $142,800 threshold."
But I have to pay 12.4% for my self-employment taxes and not 6.2%. Am I being punished for being self-employed?
So if I earn over $142,800, I won't have to pay toward Social Security?
Yes, but don't start spending that money you haven't earned yet. Since you brought it up, President Joe Biden proposed a plan during his campaign in which the cap would be raised to $400,000. That would, it has been estimated, increase Social Security revenue by $740 billion over the next 10 years.
What Is the OASDI Tax?
About 15 cents goes to a trust fund that pays benefits to people with disabilities and their families. The reason that it's "about 15 cents" is that a tiny bit of what's left over — less than a penny from each dollar you contribute — goes toward managing the Social Security program.
So if I earn over $142,800, I won't have to pay toward Social Security?
Can I Get Out of Paying the OASDI Tax?
Mostly, no. You may be able to get out of paying the OASDI tax if you fill out IRS Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits – and if the Internal Revenue Service agrees with the case that you make.
Sometimes you can get out of paying if you are part of a qualifying religious group. This is very rare, though. You and your employer both need to be part of the religious group, which needs to have been in existence continuously since or before Dec. 31, 1950, and there are other qualifiers.
What Is the OASDI Tax?
Some nonresident aliens can get out of paying the OASDI tax (though most do). Foreign government employees can get out of it.
But for most people reading this, it's a certainty. You're paying it. But at least you'll get your money back when you start receiving Social Security checks.
Can I Get Out of Paying the OASDI Tax?
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What is beta, and how does it work?
Beta is a way of measuring a stock’s volatility compared with the overall market’s volatility. The market as a whole has a beta of 1. Stocks with a value greater than 1 are more volatile than the market, and stocks with a beta of less than 1 have a smoother ride.
Beta operates as a good comparison point to a broader index fund, but it doesn’t offer a complete portrait of a stock’s risk. Instead, it’s a look at its level of volatility, and it’s important to note that volatility can be good and bad. Investors aren’t complaining about upward price movements. The downward price movement, of course, will keep people up at night.
Think of comparing the beta of different stocks in the same way you might compare nutritional labels at the grocery store. If you are a more risk-averse investor who is focused on earning income, you might shy away from high-beta stocks the same way that someone with dietary restrictions might avoid buying certain foods. A younger, more aggressive investor with a higher risk tolerance might be more inclined to chase the high-beta stocks the same way an adventurous cook will look for foods with exotic ingredients.
Beta is a data point that is widely available. You’ll find this alongside other metrics of a stock’s price when doing your research — which you should always do.
Pros and cons of using beta
Using beta to evaluate a stock’s risk
Pros
Cons
Numbers aren’t everything
The measurement doesn’t work
with young companies
To evaluate
a stock’s risk
History can hold important lessons
Beta does take into account a sizable chunk of data. With at least 36 months of measurements of the stock’s ups and downs relative to the market,
you’ll have a good idea of what the road thus far
has looked like for
other investors.
History can hold important lessons
Numbers don’t lie
Rather than combing through press releases about past product launches or trying to read between the lines of what a company’s CEO might have said at the investor day last year, and how the stock reacted to these various pieces of news, beta mathematically represents the stock’s moves for you.
Numbers don’t lie
You’re looking in the rearview mirror
You’re looking in the rearview mirror
Beta is a backward-looking, singular measure that doesn’t incorporate any other information. Sure, it’s good to reflect on what the past three years looked like, but as an investor, what you care about is what’s in store for the next three years. You want to think about business prospects and potential market disruptions on the horizon. This is why beta is only one part of your research.
Numbers aren't
everything
Beta doesn’t include qualitative factors that can play a significant role in a company’s outlook. Did that renowned CEO step down during those three years? Now that the succession plan is in place, perhaps the future will look quite a bit different.
Numbers aren’t everything
The measurement doesn’t work with young companies
As plenty of hype swirls around IPOs, beta is one number that will never be part of the conversation. Because it’s calculated on historical price movements, you can’t use beta to evaluate companies that have plans to go public or young companies that have recently been listed on Wall Street.
The measurement doesn’t work with young companies