Ethics, Recommendations & Taxation Flashcards
Preservation of capital, safety. Rec =
Government securities or Ginnie Maes
Growth. Rec =
Common stock or stock mutual funds
Balanced or moderate growth. Rec =
Blue-chip stocks
Aggressive growth. Rec =
Tech stocks or sector funds
Income. Rec =
Bonds. (Not zero’s)
Tax-free income. Rec =
Muni bonds or muni bond funds
High-yield Income. Rec =
Corporate bonds or corporate bond funds
Income-oriented stock portfolio. Rec =
Preferred stock and utility stocks
Liquidity. Rec =
Money market funds (Not DPP’s, RE, annuities)
Keep pace with inflation. Rec =
Stock portfolio
What securitiy generates greatest return INCOME with moderate risk?
Fixed income security
Purchasing power risk (inflation risk)
When the yield is lower than the inflation rate
Reinvestment risk
When rates decline, it’s harder to re-invest proceeeds to maintain same income without increasing credit
Which securities are most susceptible to reinvestment risk?
Mortgrage backed securities (MBS)
Which is NOT susceptible to reinvestment risk?
Zero coupon bonds
Call Risk
When, in high interest rate scenarios, bonds get called.
What is systematic risk?
Market risk - non-related to a company
What is Beta?
Measure of volatility in relation to market. For eg. If S&P500 rises by 10%, a stock with Beta of 1 will also rise by 10%. A stock with a Beta of 1.5% would rise by 15%.
Beta also measures what?
Systemic / Systematic risk (Market risk)
Exmples of high Beta risk:
- Tech stocks
- Automobile stocks
Earnings fluctuate substantially
Examples of low Beta risk:
- Drug companies
- Utility compniees
Earnings are stable
Examples of Passive income
- DPP’s
- Direct real estate
Who is gift tax paid by?
The doner
What is gift tax based upon?
The value
What are the tax implications of a muni bond bought at a discount?
- Discount must be accreted
- No capital gain at maturity
Which form of income is partially exempt to a corporate investor?
- Dividend income from common stock and preferred stock
When determining a wash sale, which 2/3 things need to be different for it to be ok?
- Maturity
- Issuer
- Coupon rate
What are progressive taxes?
- Income
- Estate
What are regressive taxes?
- Cigarettes
- Sales
When a donor gives a gift, what is the cost basis?
The original cost of the gift (not the current value)
What are the tax consequences when an investor donates appreciated securities to charity?
- Tax deduction
- No tax due on apreciation
How much in net losses can be carried forward to next year?
Up to $3k
Are husband and wife gifts subject to gift taxes?
NO!
