Chapters 6-10 Flashcards
Asset Allocation
Balance Between growth income and income investments in a portfolio. Allowing the investor to take advantage of the risk/reward trade off and benefit from both growth and income.
Strategic asset Allocation
Setting Target allocations then periodically rebalancing the portfolio back to those targets as an investment returns the original asset allocation percentages. Maybe linked with a PASSIVE investment style.
Tactical asset allocation
Allows for a range of percentages in each asset class. these are the min and max acceptable percentages that permit the IA to take advantage of market conditions within these parameters. Maybe linked to an ACTIVE investment style.
Market Capitalization
Reference to the value of all a company’s outstanding common shares times the current market price. Stocks are classified based on large cap, mid cap, small cap, micro cap.
Growth Stocks
Earning have been higher than average in the past and are expected to continue at a higher average rate in the future.
Value Stocks
Trade at a lower price relative to their fundamentals and are considered undervalued by a value investor. High dividend yield, low price to book ratio/ low PE ratio, Value stocks outperform growth stocks during a falling market.
Active Asset Management
Belief that a specific style of managements or analysis can produce returns that beat the market. Taking advantage of inefficiencies in the market and accompanied by higher than average costs.
Passive Asset Management
The concept that markets are efficient and returns cannot be surpassed regularly over time, and that low cost investments held for the long term will provide the best returns.
Efficient Market Theory
Based on the idea that information that affects the markets like changes to company management or fed changes is instantly available and processed by all investors. Also believe that there is no way to consistently beat market averages.
Indexing
One way to take advantage of the efficient market theory is to use index funds or create a portfolio that mimics a particular index. Index funds tend to have lower transaction costs and expense rations so they can provide an ed edge over actively managed funds which have higher costs.
Uniform Securities Act
Documented Guidance for each state to use when forming securities related legislation. Like a template, not an actual model.
What does the USA Regulate?
Sale of securities, Agents, broker -dealers and other persons, Issuers, Registration, and Transactions
National Securities Market Improvement Act -NSMIA
Passed by congress in 1996 in an effort to lessen instances of repetition between state and federal securities laws. It was enacted to unify federal and state securities laws giving rise to federal covered securities and transactions.
IA 770
Issued in 1981. Clarifies definition of investment advisors. Defines securities, advise, who is “in the business” and compensation received as an IA.
IA 1092
Issued in 1987 as a response to increased activity in financial planning and investment advise. Refined some of the definitions surrounding investment advice - basically ANY sort of advice given requires registration, non-cash comp was included as compensation for investment advice also.
