Definitions To Know

Question 1

something that is owned

Answer 1

Asset

Question 2

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

Answer 2

Asset Management Process

Question 3

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

Answer 3

Cash/Cash Equivalents

Question 4

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.

Answer 4

Contrarian

Question 5

a radical departure from a current trend or pattern

Answer 5

Discontinuous change

Question 6

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.

Answer 6

Foundation Goals

Question 7

a situation in which current financial requirements exceed current income. Income deficits are typically financed through mortgages, auto loans, and consumer credit.

Answer 7

Income Deficit

Question 8

a situation in which current income exceeds financial requirements. Income surpluses are typically available for savings, investments or consumption.

Answer 8

Income Surplus

Question 9

a small and natural extension of an existing pattern.

Answer 9

Incremental change

Question 10

on the individual’s statement of financial position - these can be stocks, bonds, limited partnerships, pension funds, and other investments

Answer 10

Invested assets

Question 11

the combination of personality characteristics that determines how the individual deals with financial assets and their allocation.

Answer 11

Investment personality

Question 12

a coherent set of guidelines for managing financial assets that is in line with a client’s goals and the realities of investment markets

Answer 12

Investment policy

Question 13

a written document for a specific investor that incorporates the set of guidelines in an investment policy

Answer 13

Investment Policy Statement

Question 14

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.

Answer 14

Liabilities

Question 15

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.

Answer 15

Lifestyle Goals

Question 16

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.

Answer 16

Net Worth

Question 17

in financial markets, random fluctuations around a long-term trend line

Answer 17

Noise

Question 18

a financial market in which the likelihood of gain favors the investor

Answer 18

Positively Biased Market

Question 19

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.

Answer 19

Risk Averse

Question 20

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.

Answer 20

Statement of Cash Flows (income statement)

Question 21

a “balance sheet,” that lists the various assets and liabilities and, by subtraction, the net worth of an individual, household or other entity.

Answer 21

Statement of financial position (statement of net worth)

Question 22

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.

Answer 22

Trust

Question 23

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.

Answer 23

Use Assets

Question 24

The price paid for an asset, adjusted by costs incurred in buying, selling and owning the asset

Answer 24

Cost basis

Question 25

A dollar-for-dollar offset against an individual’s tax liability.

Answer 25

Credit

Question 26

An amount that reduces taxable income for tax purposes.

Answer 26

Deduction

Question 27

A deduction resulting from the supposed reduction of the value of a physical asset that is used in a business or for rental purposes.

Answer 27

Depreciation

Question 28

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.

Answer 28

Dividend reinvestment plan

Question 29

An amount not subject to tax that is provided for certain individuals under tax law

Answer 29

Exemption

Question 30

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.

Answer 30

First-in, First-our

Question 31

A statement sent to shareholders and to the ITS indicating the type and amount of distributions

Answer 31

Form 1099-doc

Question 32

In a limited partnership, a class of partner responsible for day-to-day business activities of the entity

Answer 32

General partner

Question 33

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.

Answer 33

Kiddie tax

Question 34

In a limited partnership, a class of partner whose role is generally passive and confined to the contribution of capital.

Answer 34

Limited partner

Question 35

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

Answer 35

Loss carryover

Question 36

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.

Answer 36

Marginal tax rate

Question 37

A bond that is trading in the market for less than its fair market value.

Answer 37

Market discount bond

Question 38

The excess of long-term capital gains over short-term losses; in other words net long-term capital gain

Answer 38

Net capital gains

Question 39

A bind issued at a price below face value

Answer 39

Original issue discount (OID) bond

Question 40

Activity in which an investor does not materially participate. For purposes of the tax law, investors in limited partnerships are engaged in this…

Answer 40

Passive activity