ch 3 Flashcards
Employer-Sponsored Retirement Plans
also called a “qualifies plan” is a retirment investment account established by an employer for the benefits of the firm’s employees, in which contributions are typically not taxed until withdrawn in retirement.
Pros of Employer-Sponsored Retirement Plans
Extreamely easy to set up, employer matching, tax deductions on savings, tax deferred growth
Cons of Employer-Sponsored Retirement Plans
Not available to everyone, cap on max contributions, early-withdrawal penality, limited investment options.
Investment Company
a business that manages and sells investments funds to the public in addition to frequently offering a variety of other investment services
Brokerage Account
an arrangement with an investment company that allows the owner/funder to trade and hold securites within the account
Street Name
listing a brokerage firm as the owner of securites and the actual owner is recored as a “beneficial owner”
Fee-Only financial planner
a “no commission” financial advisor who charges a flat fee for investment and general financial planning advice
Full-Service broker
a broker who provides a variety of investment services for clients including research and advice, and typically earns commissions that are significantly higher than a “discount” broker
What are some things you need to consider when picking a financial advisor?
Compensation, experience, licenses, education, reputation
Benefits of “street name”
makes it more covenient for the broker and less risk. can consolidate your investments into one statement making it easier to track investments, returns, and taxes.
Wire Funds
typically faster than electronic funds transfer. a wire transfer occures between banks on an individual basis
Electronic Funds Transfer
slower and less expensive than a wire fund. uses automated clearing house (ACH) to process a transfer in aggregated (as a batch) at the end of the day
Cash Account
a regular brokerage account in which the investor must
Margin Account
a special type of brokerage account in which the broker is willing to lend cash to the investor for the purchase of securities
Cash Management Account
a type of account offered by brokerage comapnies for cash deposits
Sweep Account
Another name for a cash management account within a brokerage account - a cash account in which income is actomatically “swept” or deposited
Leverage
using borrowed capital to increase the potential return on an investment
Call money Rate
the rate at which banks are willing to lend to the investment company=
Hypothecation Agreemnt
states the lender has the right to seize the asset of a borrower if the borrower fails to service the loan as stipulated under the terms of the loan agreement
Regulation T
regulation set by the Federal Reserve Board that governs the amount of credit that a brokerage firm may lend to customers to purchase securities
Initial Margin Requirement (IMR)
the minimum amount of equity an investor put up to purchase stocks (currently 50% set by Regulation T)
Equity (In margin trading)
refers to the values of the asset minus the amount borrowed to pay for the asset.
Maintenance Margin Requirement (MMR)
the minimum amount of equity that a margin account may have.
Margin Call
communication from the broker that the equity in a margined position has dropped below the maintenance margin requirment and that more cash must be deposited into the account
