Definitions To Know Flashcards
something that is owned
Asset
a set of activities for managing the larger financial interests of the client based upon five steps: gathering data, establishing financial goals, analyzing information, making recommendations and implementing them, and monitoring performance
Asset Management Process
in the individual’s statement of financial position, a class of assets that includes cash, funds in passbook savings and checking accounts, T-bills, CDs, money market mutual funds, money market accounts, and other funds that quickly can be converted to cash with minimum loss of principal and very low transaction costs
Cash/Cash Equivalents
an attitude, or person who generally holds an attitude, directly opposite to that of the majority. In the investment world, a contrarian buys when others are fearfully selling and sells when others are optimistically buying.
Contrarian
a radical departure from a current trend or pattern
Discontinuous change
goals that provide for the most basic material needs, such as food, shelter, or clothing. An investor may, for example, have a foundation goal to accumulate enough cash and cash equivalent assets to cover several months of basic living expenses.
Foundation Goals
a situation in which current financial requirements exceed current income. Income deficits are typically financed through mortgages, auto loans, and consumer credit.
Income Deficit
a situation in which current income exceeds financial requirements. Income surpluses are typically available for savings, investments or consumption.
Income Surplus
a small and natural extension of an existing pattern.
Incremental change
on the individual’s statement of financial position - these can be stocks, bonds, limited partnerships, pension funds, and other investments
Invested assets
the combination of personality characteristics that determines how the individual deals with financial assets and their allocation.
Investment personality
a coherent set of guidelines for managing financial assets that is in line with a client’s goals and the realities of investment markets
Investment policy
a written document for a specific investor that incorporates the set of guidelines in an investment policy
Investment Policy Statement
financial obligations. On an individual’s statement of financial position, liabilities include short- and long-term debts, such a current note balances, credit card balances, and the balances on auto loans and mortgages.
Liabilities
financial goals that go beyond the basic requirements of an individual or household. While there definition is somewhat subjective, lifestyle goals typically include college education, summer homes and financial independence.
Lifestyle Goals
assets minus liabilities. This indicates the value of an individual’s or family’s financial worth if all assets were sold and all financial obligations paid off.
Net Worth
in financial markets, random fluctuations around a long-term trend line
Noise
a financial market in which the likelihood of gain favors the investor
Positively Biased Market
also risk avoiding. A term used to describe the extent to which an individual will assume or avoid investments with uncertain outcomes. The term often refers specifically to aversion to loss of principal (at any time) or aversion to volatility in the market.
Risk Averse
the statement lists an individual’s sources of income and expenses, with the difference being any surplus or deficit. Unlike the statement of financial position, which is related to a specific date, the income statement covers a specific period of time, typically a year. Because individual operate on a cash basis, the income statement reflects actual cash flows and does not have the accruals or deferrals that exist with corporate income statements.
Statement of Cash Flows (income statement)
a “balance sheet,” that lists the various assets and liabilities and, by subtraction, the net worth of an individual, household or other entity.
Statement of financial position (statement of net worth)
assured reliance on the character, ability, strength, or truth of someone or something. Trust is typically a precondition to the client’s sharing of personal information and doing business with an adviser.
Trust
In the statement of financial position, use assets are those assets typically used in normal daily living. These include automobiles, personal residence, boats, personal property and so forth.
Use Assets
The price paid for an asset, adjusted by costs incurred in buying, selling and owning the asset
Cost basis
A dollar-for-dollar offset against an individual’s tax liability.
Credit
An amount that reduces taxable income for tax purposes.
Deduction
A deduction resulting from the supposed reduction of the value of a physical asset that is used in a business or for rental purposes.
Depreciation
A plan sponsored by a corporation or investment company (mutual fund) that makes it possible for shareholders to have cash distributions used for the purpose of acquiring additional shares.
Dividend reinvestment plan
An amount not subject to tax that is provided for certain individuals under tax law
Exemption
A method of identifying individual securities from a group with a particular transaction, based upon when they were purchased. Here, the first shares purchased are assumed to be those first sold.
First-in, First-our
A statement sent to shareholders and to the ITS indicating the type and amount of distributions
Form 1099-doc
In a limited partnership, a class of partner responsible for day-to-day business activities of the entity
General partner
That portion of the Tax Reform Act of 1986 that limited the ability of parents to shift some of their investment income to their children, who had lower-or nonexistent-tax rates.
Kiddie tax
In a limited partnership, a class of partner whose role is generally passive and confined to the contribution of capital.
Limited partner
A net capital loss that is not currently deductible because it exceeds the annual $3,000 limit, but which can be used to reduce capital gains
Loss carryover
The percentage of one’s last dollar of earnings taken by taxes (synonymous with one’s tax bracket). Also can be used to gauge the after-tax impact of a charitable contribution.
Marginal tax rate
A bond that is trading in the market for less than its fair market value.
Market discount bond
The excess of long-term capital gains over short-term losses; in other words net long-term capital gain
Net capital gains
A bind issued at a price below face value
Original issue discount (OID) bond
Activity in which an investor does not materially participate. For purposes of the tax law, investors in limited partnerships are engaged in this…
Passive activity
