What Is A Settlement Date?

This has been a topic for a long time. It comes and goes in current popularity like a lot of things and once again caught some people’s attention in the early 2021 controversy over GameStop and Robinhood, etc, etc, not going very far to keep the lawyers happy.

I’m going to simplify it more though by telling you why it’s there and what it means to you. Really, what it means to you can be quite personal, so I’ll change that to what it SHOULD mean to you.

Historically the time is the time that it takes between the time that you commit to buy the

stock and the money is required from you and you actually on the stock or on the other side, when you sell the stock, when you commit to sell the stock, the stock is gone from your account and in return is replaced by the cash value.

Now, those with a great attention to detail will happily point out things like “bid and ask spreads”, and they will be right. That does not change our gut feeling, our common motivation, which is to get something for our money and to get money when we sell something.

Now if you’re searching for more detail on this, you can look for “T Plus”. In fact, historically you can think of the “T” as the date of the trade. Now, that’s not where it really comes from at all, but it serves a purpose. For the nerds among us, it comes from the Federal Reserve’s Regulation T or “Reg T”.

Now that is to outlaw a thing called “free-riding”, where a person buys something and sells it again quickly for a profit before his or her money gets called into play. In theory, you could buy something, have it go up in value, then sell it and keep the profit, all without having actually put up real money. This is supposed to prevent that.

That long period, the three business days, comes from a time not so long ago when cash, checks, and physical stock certificates still were exchanged through the U.S. postal system. With the advent of airquotes “modern electronics” we don’t have such problems, things happen faster.

As a result, we’re now at two business days, or T+2, and there’s lots of talk of T+1 or even T+0. We’ll see where that goes.

But when we buy and hold, or have other sources, when we do what’s needed without chewing up all of our brainpower, then we can truly enjoy what we love doing.

Mostly you don’t have to worry because I’m going to keep coming back to the basic themes of happiness and success over and over and over again. It’s called repetition and it works.

How does this play into Simple Success? I will elaborate with a simple story.

Once upon a time, a guy was operating under a delusion.

“Really”, said everyone else.

We all find ourselves in this sort of delusion from time-to-time.

He was thinking that since he had decided to sell X, that he should get the money right away. In fact, he had plans to take that money and buy some Y.

But, he couldn’t buy the Y without the money from X first.

This is an average way to think and to be.

Then one day our attractive character decided that he wanted to go beyond the average.

He wanted to do something better.

He had this blinding realization that he could go beyond the concerns of this world by simply refusing to have them.

Now does that sound Buddhist, or Stoic, or some other meta-physical thing?

That can’t possibly apply to investing, can it?

Yes it can. It does. Psychology is in everything.

That’s a big part of Simple Success.

So what exactly is a Settlement Date?

Remember, it's a timeline. It’s the trade date plus the effect of Reg T in the timeframe allotted like T+3, where the 3 is three business days. That’s what it took in the days when everything traveled via the US Post Office, remember.

With electronics, this cushion is not really necessary anymore, as I said, but with everything, the financial business takes its own sweet time to do anything. Like the time a few years ago when a company asked me to fax them something. That’s another topic.

So only recently did we get T+3 down to the current T+2.

Someday, probably lower like I said, and this is only to settle the cash.

Have Patience

Now, if you're patient you're not going to be concerned about those couple of days.

If you're day trading, it's far more important to have the money available right now, right this second.

But that said, patience goes a very long way toward success in this business, in this part of our lives.

Now, what if you waited until next week to jump into that thing for which you want the money right now?

Would that kill your opportunity?

Really?

When a self-appointed trading priest puts out a newsletter telling you and a hundred-thousand other people to buy CBD stocks now or never, how long has passed between the commitment to produce that newsletter and the “never” after which it’s too late?

How does that apply to Simple Success?

While silently thanking myself for the softball question, the easy layup to keep the sports metaphors going, I bring back to your mind the certain answer: have patience!

Have Alternatives

If it’s appropriate for your situation and you are comfortable with it, then you can overcome this issue with what is called a margin account.

I will be happy to explain how that works in another episode.

Another way is you could have cash on hand, or you could have another source of cash.

Yes, it's true it is possible to get in on a particular transaction over a particular stock and make a ton of money overnight (or in days as opposed to years).

But if you have two situations where you put up the same amount of your money, you are probably going to choose the one that also offers the least risk. That’s normal. Now of course, you could.

Consider Day Trading

That’s yet another way to solve this problem, but it’s not something I generally recommend because it involves so much constant attention that you may not want to take on.

It certainly is not most people’s idea of a good time. Even if they think it will be, it really won’t be.

It can be so involved as to restrict your ability to take a phone call or to take a food break or any other kind of break you might normally want.

On the good side, a day trader may make dozens of trades on the same day, but before he can do that, the broker must approve his account for day trading.

This gets more complex when we diversify into many different types of accounts where we have to decide if we actively want to trade like a day trader or check passively every so often like I recommend.

Of course, if you really love it then by all means. It’s not work then. In fact, it’s not even hard then.

As with most things, there isn’t a right or wrong answer. You simply need to acknowledge the tradeoffs and pick one.

Have Some Dry Powder

And the last idea is to have some airquotes “dry powder”.

Often, and I just encountered this with a customer yesterday, it’s a good idea to keep some amount of your money reserved in cash. Some financial people say that’s 1%, others 3% or 5%.

No matter the number, when you diversify as I do, you maintain your bank account as the center, and that or something like it can serve as the place you keep your cash reserve.

Instead of keeping money dry in each account, you could have one larger dry pool in your bank, and fully invest each sub-account, so one is 100% for real estate, another completely for Bitcoin, or stock or something else.

That’s not generalized investing advice, by the way. It might be right for your assets and your mindset, or it might not be. That’s why we have one-on-one coaching options.

With dry powder, you’re never in a situation where you have to say, “I can't buy X unless I first sell Y”.

You don’t worry about having to sell Y first or even at all. You don’t wait to buy X after a few days, when the price might have changed and might not be what you want.

When you have dry powder, you can go ahead and buy that stock knowing that any other decision you make can be made independently. There’s no pressure on you – and there’s no question that we can all use way more of that no pressure thing!

What’s happening?

We’re changing the way we look at things.

“What Is A Settlement Date?” becomes “I Invest No Matter the Obstacle!”

It’s flipping the script, and if I don’t, you can call me on it. If you want more information, you can call me on that too!

Since a big part of that is your happiness, I’m going to walk down another street.

I’ve explained a Settlement Date it really well, I think. You’ll tell me if you need more. The key take away is that it, like many things, is really only a distraction our brains often create as a plausible reason for not taking action.

Take that possibility out of the picture. Delete the negative. Surround yourself with things which uplift you instead.

And as you focus on the good things and the winning things, you’ll find a lot more of them happening to you.

Which is kind of an odd way to transition into the idea of having written exercises to go along with topics – what do you think of that idea?

If I, in a future podcast, gave you a specific, but REALLY EASY, assignment, where you’d do something which helps you to reinforce the idea I’m talking about.

Would you like that?

To be clear, you’d get something out of it – I’m not so crazy as to expect you to do something for nothing. I wouldn’t, and you probably wouldn’t either.

Right now, I just want to know if you’d like that – if you’d find it helpful.

I know from practice that repeating something (over and over) really works.

And no calculus, I promise.

Remember, this is Financial Life Coaching from A Happiness Perspective! Coaching Happiness.