What Is the American Dream?

The American dream is the belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society in which upward mobility is possible for everyone.

The American dream is believed to be achieved through sacrifice, risk-taking, and hard work, rather than by chance.

Understanding the American Dream

The term was coined by writer and historian James Truslow Adams in his best-selling 1931 book Epic of America. He described it as “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Adams went on to explain, “It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motorcars and high wages merely, but a dream of social order in which each man and woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

The idea of the American dream has much deeper roots. Its tenets can be found in the Declaration of Independence, which states: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness.”

In a society based on these principles, an individual can live life to its fullest as they define it. America also grew mostly as a nation of immigrants who created a nation where becoming an American—and passing that citizenship to your children—didn’t require being the child of an American.

Advantages and Disadvantages of the American Dream

Advantages

Achieving the American dream requires political and economic freedom, as well as rules of law and private property rights. Without them, individuals cannot make the choices that will permit them to attain success, nor can they have confidence that their achievements will not be taken away from them through arbitrary force.

The American dream promises freedom and equality. It offers the freedom to make both the large and small decisions that affect one’s life, the freedom to aspire to bigger and better things and the possibility of achieving them, the freedom to accumulate wealth, the opportunity to lead a dignified life, and the freedom to live in accordance with one’s values—even if those values are not widely held or accepted.

The books of post-Civil War writer Horatio Alger, in which impoverished but hardworking teenage boys rise to success through pluck, determination, and good fortune, came to personify realizing the Dream.

Disadvantages

Terming it a “dream” also carries with it the notion that these ideals aren’t necessarily what has played out in the lives of many actual Americans and those who hope to become Americans. The criticism that reality falls short of the American dream is at least as old as the idea itself. The spread of settlers into Native American lands, slavery, the limitation of the vote (originally) to white male landowners, and a long list of other injustices and challenges have undermined the realization of the dream for many who live in the United States.

As income inequality has increased substantially since the 1970s, the American dream has begun to seem less attainable for those who aren’t already affluent or born into affluence. According to U.S. Census family income data, real family income began to grow much more among the top income group than among other segments of American society.

These realities, however, do not diminish the luster of the American dream as an ideal and a beacon to all nations.

How to Measure the American Dream

Today, homeownership is frequently cited as an example of attaining the American dream. It is a symbol of financial success and independence, and it means the ability to control one’s own dwelling place instead of being subject to the whims of a landlord. Owning a business and being one’s own boss also represents the American dream fulfillment. In addition, access to education and healthcare have been cited as elements of the Dream.

Homeownership has steadily increased over time in the U.S., reflecting a key aspect of owning your own property as a sign of achieving the American Dream. For example, the homeownership rate at the end of 2020 was 65.8%, reflecting an increase of 0.7% higher than the previous year. Entrepreneurship has always been important to the U.S. economy too. In 2019, small businesses created 1.6 million net jobs alone.

Owning property, one’s own business, and carving a life of one’s own making is all part of the American dream, and the U.S. as a first-world country also offers the benefits of pursuing these passions, without having to worry about basics such as accessing good education and healthcare.

Special Considerations

In her book Spreading the American Dream: American Economic and Cultural Expansion, 1890-1945, sociologist Emily S. Rosenberg identifies five components of the American dream that have shown up in countries around the world. These include the following:

• The belief that other nations should replicate America’s development
• Faith in a free market economy
• Support for free trade agreements and foreign direct investment
• Promotion of a free flow of information and culture
• Acceptance of government protection of private enterprise

The American dream was aided by a number of factors that gave the United States a competitive advantage over other countries. For starters, it is relatively isolated geographically, compared to many other countries, and enjoys a temperate climate. It has a culturally diverse population that businesses use to foster innovation in a global landscape. Abundant natural resources—including oil, arable land, and long coastlines—generate food and income for the country and its residents.

The Bottom Line

The concept of the American dream is still one of the most uniquely “American” ideals—the ultimate idea that any individual should be able to pursue their dreams and build the life they want if they put in the hard work. This motivating drive influences the economy with entrepreneurship and individual ambition, infusing a romantic notion to anyone trying to be successful in the United States. Though the definition of the American Dream has changed to mean different things to different generations, it’s undoubtedly part of the American ethos, and always will be.

What Is Asset Protection?

Asset protection is the adoption of strategies to guard one’s wealth. Asset protection is a component of financial planning intended to protect one’s assets from creditor claims. Individuals and business entities use asset protection techniques to limit creditors’ access to certain valuable assets while operating within the bounds of debtor-creditor law.

Understanding Asset Protection

Asset protection helps insulate assets in a legal manner without engaging in the illegal practices of concealment (hiding of the assets), contempt, fraudulent transfer (as defined in the 1984 Uniform Fraudulent Transfer Act), tax evasion, or bankruptcy fraud.

Experts advise that effective asset protection begins before a claim or liability occurs since it is usually too late to initiate any worthwhile protection after the fact. Some common methods for asset protection include asset protection trusts, accounts-receivable financing, and family limited partnerships (FLP).

If a debtor has few assets, bankruptcy may be considered the more favorable route compared to establishing a plan for asset protection. If significant assets are involved, however, proactive asset protection is typically advised.

Certain assets, such as retirement plans, are exempt from creditors under United States federal bankruptcy and ERISA (the Employee Retirement Income Security Act of 1974) laws. In addition, many states allow exemptions for a specified amount of home equity in a primary residence (homestead) and other personal property such as clothing.

Asset Protection and Real Estate

Jointly-held property under the coverage of tenants by entirety can work as a form of asset protection. Married couples who hold mutual interest in property under tenants by entirety share a claim to a whole piece of property and not subdivisions of it.

The combined ownership of the property means that creditors who have liens and other claims against one spouse cannot attach the property for their debt reclamation efforts. If a creditor has claims against both spouses, the tenants by entirety stipulations would not protect the asset from being pursued by that creditor.

Some attempts at asset protection include putting the property or financial resource in the name of a family member or other trusted associate. For example, an heir might be gifted ownership of real estate or other property while the actual owner continues to reside in the property or make use of it. This could complicate efforts to seize property as actual ownership must be determined. Financial accounts may also be domiciled in offshore banks in order to legally avoid paying taxes against those funds.

What Is the 48-Hour Rule?

The 48-hour rule is a requirement that sellers of to-be-announced (TBA) mortgage-backed securities (MBS) communicate all pool information regarding the MBS to buyers before 3 p.m. Eastern Time, 48 hours before the settlement date of the trade. The Securities Industry and Financial Markets Association (SIFMA) enforces this rule. SIFMA was formerly known as the Public Securities Association or Bond Market Association.

Understanding the 48-Hour Rule

An MBS is a bond that is secured, or backed, by mortgage loans. Loans with similar traits are grouped to form a pool. The pool is then sold as a security to investors. The issuance of interest and principal payments to investors is at a rate based on the principal and interest payments made by the borrowers of the underlying mortgages. Investors receive interest payments monthly rather than semiannually.

A to-be-announced (TBA) trade is effectively a contract to buy or sell mortgage-backed securities (MBS) on a specific date. It does not include information regarding the pool number, the number of pools, or the exact amount involved in the transaction, which means the underlying mortgages are not known to the parties. This exclusion of data is due to the TBA market assuming that MBS pools are more or less interchangeable. This interchangeability helps facilitate trading and liquidity.

The 48-hour rule is part of the mortgage allocation process, the period when the underlying mortgages will be assigned and made available to a specific MBS, which was created to bring transparency to TBA trade settlements.

The 48-hour rule states that the seller of a specific MBS must make the buyer of that MBS aware of the mortgages that make up the MBS 48 hours prior to the trade settling. Because of the standard T+3 settlement date, this usually occurs on the day after the trade is executed.

The 48-Hour Rule as Part of the TBA Process

The TBA process benefits buyers and sellers because it increases the liquidity of the MBS market by taking thousands of different mortgage-backed securities with different characteristics and trading them through a handful of contracts.

Buyers and sellers of TBA trades agree on a few necessary parameters such as issuer maturity, coupon, price, par amount, and settlement date. The specific securities involved in the trade are announced 48 hours before the settlement.

The TBA market was established in the 1970s to facilitate the trading of MBS issued by Fannie Mae, Freddie Mac, and Ginnie Mae. It allows mortgage lenders to hedge their origination pipelines.

The TBA market is the most liquid secondary market for mortgage loans, resulting in high levels of market activity. In fact, the amount of money traded on the TBA market is second only to the U.S. Treasury market.

Example of the 48-Hour Rule

Company ABC decides to sell a mortgage-backed security (MBS) to Company XYZ and Company XYZ accepts. The sale will take place on Tuesday. On Tuesday, when the sale is made, neither Company ABC nor Company XYZ knows the underlying mortgages that make up the mortgage-backed security (MBS).

The standard industry settlement is T+3 days, meaning this trade will settle on Friday. According to the 48-hour rule, on Wednesday before 3 p.m. Eastern Time, Company ABC will have to notify Company XYZ of the mortgage allocations it will receive when the trade settles.

What Is an Asset-Based Approach?

An asset-based approach is a type of business valuation that focuses on a company’s net asset value. The net asset value is identified by subtracting total liabilities from total assets. There is some room for interpretation in terms of deciding which of the company’s assets and liabilities to include in the valuation and how to measure the worth of each.

Understanding an Asset-Based Approach

Identifying and maintaining awareness of the value of a company is an important responsibility for financial executives. Overall, stakeholder and investor returns increase when a company’s value increases, and vice versa.

There are a few different ways to identify a company’s value. Two of the most common are the equity value and enterprise value. The asset-based approach can also be used in conjunction with these two methods or as a standalone valuation. Both equity value and enterprise value require the use of equity in the calculation. If a company does not have equity, analysts may use the asset-based valuation as an alternative.

Many stakeholders will also calculate the asset-based value and use it comprehensively in valuation comparisons. The asset-based value may also be required for private companies in certain types of analysis as added due diligence. Furthermore, the asset-based value can also be an important consideration when a company is planning a sale or liquidation.

Calculating Asset-Based Value

In its most basic form, the asset-based value is equivalent to the company’s book value or shareholders’ equity. The calculation is generated by subtracting liabilities from assets.

Often, the value of assets minus liabilities differs from the value reported on the balance sheet due to timing and other factors. Asset-based valuations can provide latitude for using market values rather than balance sheet values. Analysts may also include certain intangible assets in asset-based valuations that may or may not be on the balance sheet.

Adjusting Net Assets

One of the biggest challenges in arriving at an asset-based valuation is adjusting net assets. An adjusted asset-based valuation seeks to identify the market value of assets in the current environment. Balance sheet valuations use depreciation to decrease the value of assets over time. Thus, the book value of an asset is not necessarily equivalent to the fair market value.

Other considerations for net asset adjustments may include certain intangibles that are not fully valued on the balance sheet or included on the balance sheet at all. Companies might not find it necessary to value certain trade secrets. However, since an adjusted asset-based approach looks at what a company could potentially sell for in the current market, these intangibles are important to consider.

In an adjusted net asset calculation, adjustments can also be made for liabilities. Market value adjustments can potentially increase or decrease the value of liabilities, which directly affects the calculation of adjusted net assets.