Clients & Strategies Flashcards
What’s a Sole Proprietorship?
A Firm owned by a single Individual
What’s a Partnership?
A Firm made up of 2+ Individuals
What are the 4 types of Partnerships?
General Partnership (GP)
Limited Partnership (LP)
Limited Liability Partnership (LLP)
Master Limited Partnership (MLP)
What’s a General Partnership (GP)?
A Partnership where all Partners share Responsibilities, Assets, Profits & Losses, Financial & Legal Liabilities
What’s a Limited Partnership (LP)?
A Partnership made up of a single General Partner & multiple Limited Partners
What’s the Liability of the General Partner in an LP?
Limited Partnership
Unlimited Liability
What’s the Liability of the Limited Partner(s) in an LP?
Limited Partnership
Limited Liability up to the amount they’re invested
What’s an LLP?
Limited Liability Partnership
A Partnership where all Partners have Limited Liability in the Firm up to the amount they’ve invested
What’s a Corporation?
A Legal Entity w/ Management, Owners, & Shareholders that operates separately from its Owners
What are the 3 types of Corporations?
B Corporation
C Corporation
S Corporation
What’s a C Corporation?
A Double Taxation Corporation
What’s Double Taxation?
Corporate Income is Taxed
Dividends to Shareholders are Taxed as Income
Are Corporate Owners & Shareholders Liable?
No, they have Limited Liability
What’s an S Corporation?
A Pass-Through Corporation w/ a 100- Shareholders
What’s a Pass-Through Firm?
A Firm that passes all of its Taxes on to another Individual(s)
What type of Stock can an S Corporation issue?
Only Common Stock
What’s a Limited Liability Company (LLC)?
A Pass-Through Firm that protects its owners from Personal Liability
What’s a Will?
Letter Testamentary
A Court-Recognized Document that governs how an Individual’s Assets are distributed & processed through Probate court after Death
Who’s a Testator?
The Maker of a Will
Who’s an Executor?
An Individual who Manages & Administers a Will, Trust, or Estate
Who’s a Beneficiary?
Person(s) that receive Ownership of Asset(s) within a Policy who are designated ‘Per Stirpes’ or ‘Per Capita’
What’s a Beneficiary Per Capita Desgnation?
Per Head Distribution
When Asset(s) are distributed Evenly
What’s a Beneficiary Per Stirpes Desgnation?
When Asset(s) are distributed Unevenly
What are the 3 types of Beneficiaries?
Eligible Designated Beneficiary
Designated Beneficiary
Non-Designated Beneficiary
What’s an Eligible Designated Beneficiary
A Beneficiary where Distributions are taken over the Life of the Beneficiary after the Owner’s Death
Who are the 4 Persons that Qualify as Eligible Designated Beneficiaries?
Disabled Individual
Individual Max 10 Years younger than the Deceased Owner
Minor Child
Spouse
What’s a Designated Beneficiary?
A Beneficiary where Distributions must be taken within 10 Years of the Owner’s Death
What’s a Non-Designated Beneficiary?
A Beneficiary where Distributions must be taken within 5 Years of the Owner’s Death
What’s a Trust?
A Legal Entity w/ Asset(s) that grants a 3rd Party the Legal Title to those Asset(s) for the benefit of the Beneficiaries
Who’s a Trustor?
Grantor or Settlor
The Maker of a Trust
Who’s a Trustee?
A Person or Firm that holds the Legal Title to the Asset(s) within a Trust and Manages & Administers the Trust for the benefit of the Beneficiaries
What’s an Irrevocable Trust?
Trusts that can’t be Modified or Terminated w/out the Authorization of the Beneficiary
What’s a Revocable Trust?
Trusts that can be Modified or Reclaimed by the Trustor
What’s a Simple Trust?
A Trust where all of the Net Income earned from the Assets must be distributed in the year it was earned
What’s a Complex Trust?
A Trust that can accumulate & distribute any Net Income earned from the Assets at any time
What’s a Living Trust?
Inter Vivos Trust
The standard Trust that avoids Probate Court
What’s a Charitable Firm & Foundation?
A Firm that Qualifies as Tax Exempt under IRS Code 501(c)3
What are 6 types of Charitable Firms & Foundations?
Charitable Firm
Museum
Private College or University
Private Hospital
Religious Firm
Trade School
What’s a Donor-Advised Fund?
A Fund created for the sole purpose of supporting a Charitable Firm
What’s Suitability?
An Ethical, Enforceable Standard regarding Investments that Financial Professionals are held to when dealing w/ Clients
What are the 6 NonFinancial Client Profile Investment Considerations?
Attitude
Behavioral Finance
Demographics
Experience
Life Events
Values
What’s Behavioral Finance?
The Study of how Psychological Influences & Biases affect the Financial Behaviors of Investors
What’s an Investor’s Risk Tolerance?
The Degree of Uncertainty that Investors can Tolerate w/ regard to a negative change in the Value of their Portfolio
What’s an Investor Time Horizon?
The period of time an Investor expects to hold an Investment until the $$$ is needed
What’s a Qualified Retirement Plan?
An Employer-Sponsored Retirement Plan that meets the requirements of the IRS, DOL, & ERISA and offers certain tax benefits to Employees & Employers
What are the 6 Requirements for a Retirement Plan to be Qualified?
Approved by the IRS
For the Exclusive Benefit of the Employees & Beneficiaries
Formally Written & Communicated to Employees
Have a defined Vesting Schedule
No Discrimination in Favor of the ‘Prohibited Group’
Permanent
Who are the 3 Individuals that comprise the Prohibited Group within a Qualified Retirement Plan?
Highly Compensated Employees
Officers
Shareholders
What are the 2 types of Retirement Plans?
Defined Benefit Plan
Defined Contribution Plan
What’s a Defined Benefit Retirement Plan?
A Retirement Plan where an Employer guarantees a set mthly payment for life or a lump sum payment at Retirement
What’s a Defined Contribution Retirement Plan?
A Retirement Plan that an Employee & Employer Contributes to & the Funds grow over the Employee’s working years
What’s a QDIA within a Defined Contribution Plan?
Qualified Default Investment Alternative
The Default Investment selected for an Employee if they haven’t selected their own
What are the 2 Tax Benefits of a Qualified Retirement Plan?
Contributions & Earnings may be Tax-Deferred, Tax-Deductible, & Grow Tax-Free
Lump-Sum Distributions are Eligible for Favorable Tax Treatment
What’s an Individual Retirement Account (IRA)?
A Qualified Defined Contribution Retirement Account
What’s a Traditional IRA?
Individual Retirement Account
An IRA that Individuals can open to invest Pre-Tax Earned Income and grow Tax-Deferred
What are the 4 types of Earned Income?
Commissions
Professional Fees
Salaries
Wages
What are the Traditional & Roth IRA 2023 Contribution Limits?
Age 50- can contribute $6,500-
Age 50+ can contribute $7,500-
What’s a Rollover?
Moving Funds from one Account to another
What are the 2 types of Rollovers?
Direct
Indirect
What’s a Direct Rollover?
Transfer
A Rollover that can be immediately initiated between 2 Accounts electronically
What’s an Indirect Rollover?
60-Day Rollover
A Rollover where the Funds are withdrawn via Check & Deposited into the New Account within 60 Days
Which 2 Retirement Accounts can you only Initiate Indirect Rollovers for Once per Year?
Traditional IRA to Traditional IRA
Roth IRA to Roth IRA
What 3 things happen when an Indirect Rollover is Initiated via a Check Written out to You?
Your Employer must Withhold 20% of the Funds
You must Deposit 100% of the Funds into the New Account within 60 Days
You are Refunded the 20% Withholding on your next Tax Return
What 3 things happen when you Exceed the Traditional IRA Contribution Limit?
Incur a 6% Penalty Annually until Removed
Tax Deferred ✖
Tax Deductible ✖
What’s a Traditional IRA Non-Qualified Withdrawal?
Distribution
Age 59.5- Withdrawals incur Income Tax & 10% Penalty
What are the 8 Exceptions for a Retirement Plan Non-Qualified Withdrawal?
Distribution
Childbirth or Adoption up to $5K
Death of the Account Owner
Divorce Decree
Higher Education Expenses for You or a Qualified Family Member
Permanent Disability or Terminal Illness of the Account Owner
Purchase or Rebuild of 1st Home for You or a Qualified Family Member w/ a Lifetime Limit of $10K
Qualified Rollover
Unreimbursed Medical Expenses in Excess of 10% of your Adjusted Gross Income (AGI) or 7.5% if you are 65+
What’s a Roth IRA?
Individual Retirement Account
An IRA that Individuals can open to invest After-Tax Earned Income that grows Tax-Free w/ Tax-Free Withdrawals at Retirement
What are the Roth IRA 2023 Eligibility Limits?
Single MAGI $138K to $153K
Married MAGI $218K to $228K
Modified Adjusted Gross Income
What are the Roth IRA 2023 RMDs?
Required Minimum Distribution
There are No RMDs for Roth IRA’s
What’s a Simplified Employee Pension (SEP) IRA?
Individual Retirement Account
An IRA that a Self-Employed Individual or Partnership can open to invest Pre-Tax Earned Income and grow Tax-Deferred
What are the 3 Requirements to be Eligible for a SEP IRA?
Individual Retirement Account
Age 21+
Earning $750+ from the Employer
Who has worked for the Employer for 3 of the last 5 years
Who are the 2 Individuals who aren’t Eligible for a SEP IRA?
Individual Retirement Account
Employees who are in a Union Agreement that bargains for Retirement Benefits
Immigrants w/out papers who don’t receive Compensation from Employer
What are the 4 SEP IRA Contribution Rules?
Individual Retirement Account
Issued by the Employer/Self-Employed Individual only
Amount determined by Employer annually
Each Employee must receive the same amount
Employees manage the Investment decisions
What are the SEP IRA 2023 Contribution Limits?
Individual Retirement Account
Max of 25% of an Employee’s Income
Max of $66K
What’s a SIMPLE IRA?
Savings Incentive Match Plan for Employees
An IRA that an Employer or Self-Employed Individual w/ 100- Employees can open to invest Pre-Tax Earned Income and grow Tax-Deferred
What are the Simple IRA 2023 Contribution Limits?
Individual Retirement Account
Age 50- can contribute $15,500-
Age 50+ can contribute 19,000-
What are the Simple IRA 2023 Employer Matching Contribution Limits?
Individual Retirement Account
A Non-Elective Contribution of 2% Employee Salary
A $-for-$ Elective Contribution up to 3% Employee Salary
Either Or
What are the 2023 RMDs for Traditional, SEP, & SIMPLE IRA’s?
Required Minimum Distributions
April 1 after Age 73
25% Tax Penalty if no RMD is taken
10% Tax Penalty if Corrected in a Timely Manner
What’s a 401(k) Plan?
A Qualified Defined Contribution Retirement Plan where an Employee Elects a % of their Salary to deposit into the Account
What are the 2 types of 401(k) Plans?
Roth 401(k)
Traditional 401(k)
What’s a Roth 401(k) Plan?
An After-Tax 401(k) Plan
Tax Deductible ✖
Withdrawals are Tax-Free 🗸
What’s a Traditional 401(k) Plan?
A Pre-Tax 401(k) Plan
Tax Deductible 🗸
Withdrawals are Taxed ✖
What’s a 403(b) Plan?
Tax-Deferred Annuity (TDA) or Tax-Sheltered Annuity (TSA)
A Qualified Defined Contribution Retirement Plan for specific Employees of Public Schools & Other Tax-Exempt Firms
Traditional & Roth versions offered
What’s a 457(b) Plan?
A Qualified Defined Contribution Retirement Plan offered to Employees of State & Local Gov.’s and some Nonprofit Firms
Traditional & Roth versions are offered
What are the 401(k), 403(b), & 457(b) Plan 2023 Contribution Limits?
Age 50- you can contribute $22,500
Age 50+ you can contribute $30,000
What’s a Non-Qualified Retirement Plan?
An Employer-Sponsored Retirement Plan that meets the requirements of the IRS, DOL, but not ERISA
What’s a Coverdell Education Savings Account (ESA)?
A Trust w/ After-Tax Tax-Deferred Cash that’s used to pay Qualified Education Expenses for a Designated Beneficiary for K-12 & College
What are the 3 Qualified Education Expenses for an ESA?
Coverdell Education Savings Account
Academic Tutoring & Special Needs Services
Books & Equipment
Tuition & Fees
What are the ESA 2023 Contribution Limits?
Coverdell Education Savings Account
Single AGI of $95K-$110K &
Married AGI of $190K-$220K:
$2K- / year / Beneficiary
Adjusted Gross Income
What are the ESA Age Restrictions?
Coverdell Education Savings Account
Age 18-
Exceptions for Special-Needs Beneficiary
What happens to an ESA when the Beneficiary turns 30?
Coverdell Education Savings Account
The Account must be Fully Liquidated or Rolled Over to another Beneficiary within 30 Days
Are ESA Withdrawals Tax-Free?
Coverdell Education Savings Account
Yes, for Qualified Education Expenses
What’s a 529 Plan?
Qualified Tuition Programs
After-Tax Tax-Deferred Accounts that can be used to pay Qualified Education Expenses
What are the 2 types of 529 Plans?
529 Education Savings Plan
529 Prepaid Tuition Plan
What’s a 529 Education Savings Plan?
A 529 Plan for K-12
What’s a 529 Prepaid Tuition Plan?
A 529 Plan for College/University
What are the 4 Qualified Education Expenses for 529 Plans?
Registered Apprenticeship Program Expenses
Room & Board
Student Loan Debt Repayment
Tuition & Fees
What are the Contribution Limits for 529 Plans?
Single Contributions: $17K- Annually or $85K- for a Lump-Sum 5/yr period
Married Contributions: $34K- Annually or $170K- for a Lump-Sum 5/yr period
Account Total Contributions: $235K to $529K depending on the State
All Contributions are considered Gifts
Are 529 Plan Withdrawals Tax-Free?
Yes, for Qualified Education Expenses up to $10K/yr
What are the Penalties for a Non-Qualified Withdrawal for an ESA or 529 Plan?
Ordinary Income Taxes
Fees
10% Penalty
What’s a Gift Tax?
Taxes incurred on Gifts that are above Thresholds
What are the 6 Qualified Gifts?
Cash
Fine Art
Patents
Real Estate
Royalties
Securities
What are the 4 Non-Qualified Gifts?
Educational Expenses
Medical Expenses
Gifts to Spouses
Gifts to Political Organizations
What are the 2023 Gift Tax Contribution Limits?
Single Contributions: $17K- Tax-Free Annually & Lifetime Max of $12.92M
Married Contributions: $34K- Tax-Free Annually & Lifetime Max of $25.84M
What’s a Uniform Gifts to Minors Account (UGMA)?
A Custodial Account (w/ one Custodian) that provides After-Tax Irrevocable Gifts to one Minor
What’s a Uniform Transfers to Minors Accounts (UTMA)?
A Custodial Account used to Transfer Financial Asset(s) to Minors & is an extension of UGMA
How are Earnings Taxed within a UGMA?
Uniform Gifts to Minors Account
1st $1,250 is Tax-Free
2nd $1,250 is Taxed at Minor Tax Rate
$2,500+ Taxed at Parent Tax Rate
What’s a Health-Savings Account (HSA)?
A Tax-Advantaged Account for Eligible Individuals covered under a HDHP to save for Qualified Medical Expenses
High Deductible Health Plan
What are the 4 Eligibility Requirements for a HSA?
Health-Savings Account
Aren’t enrolled in Medicare
Aren’t claimed as a Dependent on someone else’s Tax Return
Have a Qualified HDHP
Have no other Health Coverage
What are the HSA 2023 Contribution Limits?
Health-Savings Account
Age 55- Max $3,850
Age 55+ Max $4,850
Max $7,750 for a Family
When can you use HSA Funds?
Health-Savings Account
After the Deductible for your HDHP has been reached
High Deductible Health Plan
What happens if you use HSA Funds for Non-Qualified Health Expenses?
Health-Savings Account
Age 65- incur Income Tax & a 20% Tax Penalty
Age 65+ incur only Income Tax
What are the HDHP 2023 Deductible Limits?
High Deductible Health Plan
Min. $1,500 for an Individual
Min. $3,000 for a Family
What’s a Health Insurance Deductible?
How much $$$ you are required to pay for Qualified Health Expenses before the Insurer provides relief
What’s an Embedded Health Insurance Deductible?
A Family Health Plan where if only one Family Member incurs Health Expenses, then they Qualify for the Individual Deductible Limit
What’s an Aggregate Health Insurance Deductible?
Non-Embedded
A Family Health Plan where if more than one Family Member incurs Health Expenses, then they Qualify for the Family Deductible Limit
What’s a Financial Account?
An Account created w/ Financial Institutions to Store & Manage Asset(s)
What’s a Brokerage Account?
A Financial Account used for Investing Cash
What’s a Cash Account?
Type 1
A Traditional Brokerage Account where Investors must deposit Funds to purchase Securities with
What are the 2 types of Brokerage Accounts?
Cash Account (Type 1)
Margin Account (Type 2)
What’s a Margin Account?
Type 2
A Brokerage Account Funded by a Loan from a BD that a Client must deposit 50% of the Purchase Price of a Security in order to Purchase
Broker-Dealer
What’s a Margin Agreement within a Margin Account?
Hypothecation Agreement
An Investor pledges the Securities in the Account to be used as Collateral by the BD
Broker Dealer
What’s a Money Market Account (MMA)?
Money Market Deposit Accounts (MMDA)
An Interest bearing Checking or Savings Account offered by a Bank or Credit Union
What are the Benefits of an MMA?
Money Market Account
Generally pays ▲ I/R than regular Savings Accounts
May come w/ a Debit Card and limited Check Writing Privileges
What’s a Joint Account?
An Account that 2+ Individuals have Ownership of
What are the 3 types of Joint Accounts?
Community Property w/ Rights of Survivorship (CPWROS) Account
Joint Tenant w/ Right of Survivorship (JTWROS) Account
Tenants in Common (TIC) Account
What’s a JTWROS Account?
Joint Tenants w/ Rights of Survivorship
A Joint Account w/ Equal Ownership Interest
What are the 2 Benefits of a JTWROS Account?
Joint Tenants w/ Rights of Survivorship
Bypasses Probate Court
Owner who Survives Inherits 100% of the Account
Do JTWROS Accounts incur Estate Taxes?
Joint Tenants w/ Rights of Survivorship
Yes, when an Owner Dies
What’s a Tenants in Common (TIC) Account?
Tenants in Common
A Joint Account w/ Unequal Ownership Interest
What happens when one Owner of a TIC Account Dies?
Tenants in Common
Account Freezes, is marked as Deceased, & Open Orders are Canceled
Paperwork is Gathered (Affidavit of Domicile, Death Certificate, Inheritance Tax Waiver, Will or Trust)
Their Ownership Interest is governed by State Law, their Will, or Trust
What’s a CPWROS Account?
Community Property w/ Rights of Survivorship
A Joint Account w/ Equal Ownership Interest where the Owners have to be Married
What’s the Benefit of a CPWROS Account?
Community Property w/ Rights of Survivorship
The Account can avoid Estate Taxes, if the Joint Property is immediately sold after an Owner Dies
What’s a Qualified Domestic Relations Order (QDRO)?
A Divorce Court Order that Grants an Individual the Right to a portion of a Participant’s Retirement Funds
What’s Tenancy by the Entirety?
Allows Married Individuals w/ a Joint Account to Own Property as a Legal Entity w/ the Right of Survivorship
What’s a Transfer On Death (TOD) Designation for a Brokerage Account?
A Designation granted to an Individual Brokerage Account so the Account can bypass Probate Court when the Owner Dies
What’s a Payable On Death (POD) Designation for a Checking or Savings Account?
A Designation granted to an Individual Checking or Savings Account so the Account can bypass Probate Court when the Owner Dies
What’s the Employee Retirement Income Security Act (ERISA)?
A Federal Law (enacted in 1974) that protects the Retirement Assets of American Workers
What’s ERISA §404(c)?
Employee Retirement Income Security Act
Provides Liability protection to Fiduciaries of Defined-Contribution Retirement Plans
What are the 3 Chapters of ERISA §404(c)?
Employee Retirement Income Security Act
Investment Choice
Investment Communication
Investment Control
What’s the ERISA §404(c) Investment Choice chapter about?
Employee Retirement Income Security Act
Providing Participants w/ a Broad Range of Investment Options
What are the 3 Investment Options under the ERISA §404(c) Investment Choice chapter?
Employee Retirement Income Security Act
3 Asset Classes w/ different Risk & Return
Bonds
Money-Market Fund
Stocks
What’s the Purpose of the ERISA §404(c) Investment Choice chapter?
Employee Retirement Income Security Act
To ▲ Diversification & ▼ Risk for the Participant
What are the 3 requirements of the ERISA §404(c) Investment Control chapter?
Employee Retirement Income Security Act
Adequate Investment Info Provided
Min. Investment Changes of Once per Quarter
Investment Voting Rights Granted
What’s an Investment Policy Statement (IPS) as defined by ERISA?
Employee Retirement Income Security Act
A Formal Document between a Portfolio Manager & a Client that Outlines how Investment Options are Selected, Monitored, & Evaluated
What’s a Prohibited Transaction?
Transactions that a Fiduciary can’t execute w/ a ‘Party of Interest’ if they are in violation of ERISA
Employee Retirement Income Security Act
Who’s a Party of Interest as defined by ERISA?
Employee Retirement Income Security Act
Employer or Union sponsoring a Plan
Service Provider to a Plan
Affiliates of ^^^
What are the 5 types of Prohibited Transactions as defined by ERISA?
Employee Retirement Income Security Act
Any Transfer to, or use of Plan Assets by or for the benefit of the Party of Interest
Any Sale, Exchange or Leasing of Property
Causing a Plan to Acquire & Retain Employer Securities or Property
Furnishing of Goods, Services or Facilities
Lending of $$$ or other extension of Credit
“. . . in violation of ERISA”
Who’s a Fiduciary as defined by ERISA §404(c)?
Employee Retirement Income Security Act
A Person or Entity responsible for managing a Retirement Plan’s Assets in the Best Interest of the Plan Participants & Beneficiaries
What’s the Capital Market Theory?
The Theory that the purchase & sale of Long-Term Debt & Equity are essential to Economic Growth
What’s the Capital Asset Pricing Model (CAPM)?
The Risk-Adjusted Expected Return on an Investment that has known historical RoR’s
What’s the CAPM Equation?
Risk-Adjusted Return
What’s Modern Portfolio Theory (MPT)?
The Theory that a Managed Portfolio should achieve Optimum Returns given the inherent Risk of the Portfolio Holdings
What’s the Efficient Frontier?
A Portfolio’s relationship between Risk & Expected Return
What’s the Efficient Market Hypothesis (EMH)
Efficient Market Theory (EMT)
A Hypothesis that Share Prices reflect all info & consistent Alpha generation is impossible, thus investing in a low-cost, Passive Portfolio is best
What are the 3 elements of the EMH?
Efficient Market Hypothesis
Strong Efficiency
Semi-Strong Efficiency
Weak Efficiency
What’s an EMH Strong Efficiency?
Efficient Market Hypothesis
All Info (Public or Private) in a Market is accounted for in the Stock Price
What’s an EMH Semi-Strong Efficiency?
Efficient Market Hypothesis
All Public Info is accounted for in the Stock Price & Neither Fundamental nor Technical Analysis can achieve superior gains
What’s an EMH Weak Efficiency?
Efficient Market Hypothesis
All past Stock Prices are reflected in today’s Stock Price & Technical Analysis can’t achieve superior gains
What’s Keynesian Theory?
The Theory that Government Intervention Stabilizes an Economy through Expansionary Fiscal Policy to Achieve full Employment & Price Stability
What’s Supply Side Economics?
Reagonomics
The Theory that increasing the Supply of Goods & Services is the Engine of Economic Growth & Tax Cuts encourage Job Creation, Business Expansion, & Entrepreneurial Activity
What are the 3 Primary Asset Classes?
Cash & Cash Equivalents
Equity (Stocks)
Fixed Income Securities (Bonds)
What are the 2 types of Asset Allocation Strategies?
Strategic Asset Allocation
Tactical Asset Allocation
What’s Strategic Asset Allocation?
A buy-and-hold Portfolio Strategy that periodically Rebalances to optimize ROA & Client Profile
What’s Tactical Asset Allocation?
Market Timing
An Active Trading Portfolio Strategy that temporarily Rebalances to optimize ROA & Client Profile in the Short-Term, then Rebalances back to the Long-Term Allocation Targets immediately afterwards
What’s Portfolio Rebalancing?
The adjustment of a Portfolio’s % Investment in each Asset Class
What’s an Investment Style?
The way a Portfolio Manager or Investor manages & optimizes a Portfolio
What’s an Active Trading Style?
Actively buying & selling individual Stocks & Assets in an attempt to beat the performance of an Index
What’s a Passive Trading Style?
Index Fund Management, Indexing, Index Investing
Replicating the Return of a particular Market Index or Benchmark
What’s a Growth Trading Style?
Investing in Growth Stocks w/ ▲ P/E & P/B Ratios
What’s a Growth Stock?
Young, Small, Emerging Firms w/ ▲ Expected RoRs
What’s a Value Trading Style?
Investing in Stocks that appear to be Trading for less than their Intrinsic or Book Value w/ ▼ P/E & P/B Ratios
What’s an Income-Oriented Trading Style?
Investing to generate & maintain an Income by prioritizing Fixed-Income Securities or Equities that issue Dividends
What’s a Tax-Efficient Trading Style?
Investing in a way that Taxes are Minimized, even at the Expense of ▲ Returns
What’s the Time Weighted Return?
Geometric Mean Return
The CAGR of a Portfolio during a specific Time Period that eliminates the distorting effects on growth rates created by CF’s
What’s an Annualized Return?
The Annual Return of an Investment
What’s the Total Return of an Investment?
Expressed as a Cumulative or Annualized Total Return
The entire Return an Investment earns over a Holding Period
What are the 3 Components of a Total Return of an Investment?
Changes in Market Value
Compounding
Dividend/Interest Distributions Reinvested
What’s an Expected Return?
The amount of $$$ an Investor expects to receive from an Investment
What’s a Rate of Return (RoR)?
Nominal Rate
The Net Gain or Loss of an Investment over a specific time period, expressed as a % of the Investment’s Initial Cost
What’s the Real RoR?
Inflation Adjusted Return
The Annual % of Profit Earned on an Investment, adjusted for Inflation
What’s an After-Tax Return?
Tax-Free Yield
The % ROI after Taxes have been paid
What’s the After-Tax Return Equation?
Tax-Free Yield
What’s the Taxable Yield Equation?
Tax Equivalent Yield
What’s an Overall Market?
Benchmark or Indexes
A specific Market Sector that can be used for Portfolio Performance Comparisons
What are the 2 types of Overall Markets?
Benchmark or Indexes
Broad
Narrow
What are the 4 Common Indexes?
Overall Markets or Benchmarks
Standard & Poor’s (S&P) 500
MSCI
Russel 2000
Wilshire 5000
What’s the Standard & Poor (S&P) 500?
An Index of 500 Large-Cap Domestic & International Stocks
What’s the MSCI?
An Index of 1,600+ Developed World Stocks
What’s the Russel 2000?
An Index of 2,000 Small-Cap Domestic Stocks
What’s the Wilshire 5000?
An Index of 5,000 Domestic Stocks
What’s the Rule of 72?
How long it takes an Investment to Double at a given Compound I/R
What are the Rule of 72 Equations?
What’s Diversification?
Investing in Assets, Securities, and Industries that aren’t correlated to mitigate Risk
What’s Sector Rotation?
A Tactical Asset Allocation Strategy used to Rebalance a Portfolio to a favorable Market Sector based on Economic Indicators & Conditions
What’s Dollar-Cost Averaging?
Constant Dollar Plan
Systematically investing equal amounts of $$$ in a Security at regular intervals regardless of Stock Price
What are the Benefits of Dollar-Cost Averaging?
Constant Dollar Plan
May ▼ Avg. Cost/Share
May ▼ Portfolio Volatility
▼ Reliance on Market Timing of Lump-Sum Investments
What’s a Capital Goal Strategy?
Investing to achieve Capital Goals within a defined time period by ▼ Risk & ▲ Liquidity
What’s Leveraging?
Borrowing $$$ to Invest w/
What’s Volatility?
A measure of the Dispersion of a dataset over time
What’s Volatility Management?
Managing a Portfolio to a Constant Volatility rather than a specific Asset Allocation using Beta
What’s Ordinary Income Tax?
Any Earned Income that’s Taxable at the IRS Ordinary Income Rates
Which Assets incur Ordinary Income Taxes?
Bond Interest
Dividends
Short-Term Capital Gains (1- yr)
What’s Capital Gains Tax?
IRS Taxes of the Net Gain of Assets Sold or Withdrawn
What are the 2 types of Capital Gains Tax?
Short-Term (1- yr)
Long-Term (1+ yr)
How are Short-Term Capital Gains Taxed?
As Ordinary Income
How are Long-Term Capital Gains Taxed?
At Preferential Tax Rates (0%, 15% or 20%)
What’s Federal Income Tax?
Taxes charged by the Federal Gov. based on your AGI to Fund Federal Programs
Adjusted Gross Income
What’s the Income-Related Monthly Adjustment Amount (IRMAA)?
Additional Federal Taxes charged to Individuals w/ ▲ MAGI
Modified Adjusted Gross Income
What’s Alternative Minimum Tax (AMT)?
An Alternate Income Tax Liability for Individuals w/ AMT Preference Items
What are the 2 AMT Preference Items?
Interest earned from:
Incentive Stock Options (ISO)
Industrial Revenue Bond (IDR)
What are the 3 Types of Income?
Active Income
Passive Income
Portfolio Income
What’s Active Income?
Income earned for performing a Service
What are the 5 types of Active Income?
Commissions
Fees
Salaries
Tips
Wages
What’s Passive Income?
Income generated by someone other than an Employer or Contractor
What are the 4 types of Passive Income Generators (PIGs)?
Credit Card Rewards
Limited Partnership (LP)
Rental Property
Savings Account Interest
What are Passive Activity Losses (PALs)?
Losses derived from PIGs that can only be Offset by Passive Income Profits
What’s Portfolio Income?
Income earned from Investments, Dividends, Interest, Capital Gains, & Royalties from Investment Property
Which Corporations incur a Corporate Tax Rate?
Only C Corporations
What are Estate Taxes?
Taxes incurred on Assets of an Individual(s) who Died that are above a Threshold
What are the Estate Tax 2023 Exemptions?
Single Exemptions: $12.92M
Married Exemptions: $25.84M
Are the Estate & Gift Tax Exemptions Portable for Married Couples?
Yes, when a Partner dies, the Living Partner still qualifies for the Married Exemption Limits
Are Securities Donated to Charity Tax-Deductible?
Yes, but only if the Security was held for 1+ Year
What’s an Investors Cost Basis?
The Original Purchase Price of each set of Shares of a Security incl. Sales Charges
What happens to an Investor’s Cost Basis when they Sell Shares?
They must Designate to sell Shares using LIFO or FIFO
What happens if an Investor Sells Shares w/out Designating their Cost Basis?
IRS charges Capital Gains Taxes based on FIFO (which is ▲)
What’s a Beneficiaries Step-Up/Down Basis?
The Cost Basis of Inherited Securities
How does the IRS Tax Inherited Securities using Step-Up/Down Basis?
The IRS charges Capital Gains Taxes based on the Fair Market Value (or NAV for Mutual Funds) of those Securities on the Day of the Deceased’s Death
