Brian Lee Video Flashcard Notes
Comparing corporate bond to municipal bond equation
muni yield / 100% - TB (tax backet)
Demand Deposit
Checking account / no interest (income)
CD
Bank CD, also doesn’t pay income, paid interest once matured.
Money market
Short term, high quality, DEBT
Highly liquid & safe
PAY income
NOT guaranteed
NOT insured
Commercial paper
TBills
Term certificates of deposit (CD’s)
T-bills
repurchase agreements (repos)
Money market mutual funds
Characteristics of the following:
UIT
Open end management companies
Closed end management companies
ETF
REIT
Similarity:
UIT & Open end
- Securities act ‘33 reason they have prospectus
- All are ‘pooled’ & clear investment objective
- Find the investment objective in prospectus
- All shares purchased are ‘new shares’
- Value based on all stocks / bonds inside pool
- Closes 4pm ET is when pricing, add up all stocks/bonds/etc - incurred costs = NAV
- NAV calculated ONCE per day end of day
- Sell shares BACK to investment company, not on the market, REDEEMED securities, sold back to them
- Trade ONCE per day, end of day and sold AT NAV (+ sales charge)
Closed End:
- IPO issue shares one time, and shares are traded in the secondary market
- Trade throughout the day, they can trade anywhere in relation to NAV, which means it is traded on secondary
- SUPPLY & DEMAND
- Purchase at market price
ETF: Similar to closed end
- IPO issue shares one time, and shares are traded in the secondary market
- THEY TRACK AN INDEX (think Fidelity FXAIX)
- Low management fees
- Low expenses
- Buy & sell throughout the day
- Passive management
REIT:
- Rental income
- Mortgage income
- Trade in secondary markets
- INCOME investment tool
NAV
Total worth - liabilities = NAV
(net worth of a company)
security act 33 vs 44
33 - regulates primary / new issue markets
34 - when traded in secondary
NAV per share calculation
NAV divided by outstanding shares
Max sales charge for Open End
8.5%
Why limited partnerships (alternative investment), what are the advantages?
It is a viable business, yes there are tax benefits, but that is a secondary benefit.
Hedge funds (alternative)
- Loosely regulated and unregistered with SEC
- Options, derivatives, buying on margin - a lot more highly speculative strategies a mutual fund can’t
Structured investment (alternative investment)
Equity Linked Note (ELN). It is linked to an equity security, typically an index, regular income from interest, but principal is linked to the return of an underlying equity index
Fixed annuity vs Variable annuity
Purely insurance product not security - fixed - and has a guaranteed return. NO investment risk. There is inflationary risk and purchasing power risk due to this.
Variable annuity - no guaranteed return, IS A SECURITY, a VEHICLE TO INVEST FOR RETIREMENT, NOT AT RETIREMENT. The investment vehicle inside the product is registered with SEC, referred to as a SEPERATE ACCOUNT. INVESTMENT GROWS TAX DEFERRED and PENALTY for early withdraw 10% before 59.5
LIFO
TAXED - ordinary income
Customer has equity based annuity with a 80% participation rate, if market goes up 10% what would the customer return be?
8%
index goes down, you are guaranteed against loss, so it would remain the sam
Non qualified variable annuity
Initial investments are all AFTER tax money, money you’ve already paid taxes on. I.e. 20k will represent cost basis, since you’ve paid taxes, and over the course of life it grows. You will only be taxed on capital gains and earnings.
When you start taking money out. LIFO
