4/19/2023 Flashcards
No more than 60% of investment companies Board Members can be What?
Affiliate’s
(they cant be employed by the company or own 10% ownership or more)
(they would all probably vote exactly the same)
how many of investment companies’ board seats can be filled by Affiliates?
up to 60%
DPP
Direct Participation Program
Type of Limited Partnership
Min of $250k to enter (high buy in price)
VERY illiquid
only allows a MAX 25 non accredited investors into the DPP
Only entities that CAN pass through losses to the investor
DPP’s and Partnerships
Different than passing through liability (only general partnerships pass through liability)
What’s the difference between passing through
Losses
and passing through
Liability
to the investor
Losses - Losses in the Fund (unlike other investments that pay dividends or dont, passing Gains and Losses through means they dont pay you a dividend but literally send your % of income or Losses directly to you)
Liability - if entity is sued can they come after the investors other stuff (ie: home, car, boat, etc…)
General partnership VS Limited Partnership
in relation to Losses
and Liability
Losses:
Gen partner= Pass through to investor
Limited partner = Pass through to investor
Liability:
Gen partner= Pass through to investor
Limited partner = DONT Pass through to investor
Investment Companies owning voting % of another investment company
Can only own 3% of voting rights of another investment company
Minimum Public Offering Amount for Investment Companies
$100K
Can Investment Companies Leverage or Buy On Margin?
Leverage - Yes
Buy on Margin - NO
Difference between Buying on Margin and Leveraging
Buying on margin - Borrowing money and putting a portion of yours down when buying securities
Some is your $ and some is their $
Leveraging - Borrowing money and doing whatever you want with it. (Its all yours but you have to pay it back eventually)
All of it is your $ but you owe them $ back
Length of time it takes for an Investment company to redeem shares
Is regulated by the Investment Company Act of 1940
they have 7 days MAX to redeem your shares
(when you want to cash out)
CAPM
Capital Asset Pricing Model
Maximizing the return you get for the level of risk you are taking
You want your return to be as close to the efficient frontier as possible (where risk = return)
“for this amount of risk we should be getting this much reward”
Efficient Frontier
Part of CAPM
its where risk is equal to reward
you want your investment to be as close to the efficient frontier as possible
Efficient Market Hypothesis
Strong - Pubilc and Private Info is Reflected in stock price
Semi-Strong - Public info is reflected in stock price but not private
AND when private become public info it IMMEDIATELY reflects in the stock price
weak - Public info is reflected in stock price but not private
AND when private becomes public info it reflects in the stock price AFTER it is analyzed
Strategic Asset Allocation
Shoots for a certain split (ie: 60/40) and rarely changes from it
rebalances every quarter
Passively Managed
Tactical Asset Allocation
Has a split (ie: 60/40) but it frequently changed
rebalances Frequntly based on current Economic and Fundamental information
Activly Managed
Difference between Long and Short Term Capital Gains
Long Term - Security was held for longer than 1 year
Taxed as Long Term Capital Gains
Short Term - Security was held for less than 1 year
Taxed as Ordinary Income
How much can you deduct in losses every year in Ordinary Income
find net Long term gains
find net Short Term Gains
Add the 2 together
If result is positive => pay ordinary income tax on short term and Long Term Capital Gains on the Long Term Gains
If result in negative =>
$3K Max /year
If you took a loss bigger than that you can carry it over into new years and deduct it from any gains in those years or add it to any new losses in those years
Difference Between Qualified and NQ Dividends
Qualified - Dividend was payed from Net Earnings of that year
TAXED AS LONG TERM CAPITAL GAINS
NQ - Dividend was payed from retained Earnings (earnings of previous years that wasnt paid in a dividend or spent by the company)
TAXED AS ORDINARY INCOME
Another name for Non-Qualified Dividends
Special Dividends
AGI
Adjusted Gross Income
Gross income - Write Offs
AMT
Alternatve minnimum tax
Takes away some of the write offs from AIG
individuals paytaxes on AIG or AMT which ever is higher
Max Write Off for Gifted Money
$15k - if your single
$30k - if you are married
(Write off usually for the giver NOT the receiver)
How do taxes work on Inherited or Gifted assets?
you determine the cost basis
once you sell those securities you pay short/long-term gains from that new cost basis
gifting:
cost basis => whatever the cost basis was for the donor (no step up in cost basis)
Inheriting:
Cost Basis => whatever the cost basis was once they passed away (called a step up in cost basis)
(step up in cost basis happens because the individuals estate pay estate taxes on that money before its ever given to you)
IF SECURITIES ARE SOLD WITHIN 1 YEAR OF RECEIVING IT:
If the value is less now that the donor’s original cost basis
then the cost basis is either when you received it or when their old cost basis whichever favors you most
What do you need to know about Trust’s and Taxes
Trusts DONT pass through taxes onto the beneficiary
they pay it themselves
they have a progressive tax system
(like the ordinary marginal income tax bracket the more you make the higher % you have to pay)
(this is speaking only about Federal Taxes Not state. every state has their own rules)
if you receive a $ gift do you have to pay taxes on it
No, if its under 17k
if over 17k you have to pay Gift Taxes
(the giver doesn’t get a write-off for gifting it to you though)
