Fundamental Considerations In Wealth management Flashcards
What are the 6 components of the financial planning process?
.savings and budgeting
.investment planning
.insurance planning
.income tax planning
.retirement planning
.estate planning
What are the 3 phases of the financial life cycle
1) accumulation
2) conservation / protection
3) distribution / gifting
What is the accumulation phase
Early to middle years of career with limited funds to invest. Have low net worth. Short term goals would including saving for a house. Long term would be saving for college or implementing a retirement plan.
What is the conservation / preservation phase
Typically past midpoint of career. They have decreased debt, higher cash flow, higher net worth. Short term goals would be paying for college. Long term would be saving more for retirement and preserving principal.
What is the distribution / gifting phase?
People entering retirement. Concerned with maintaining current life style. Long term goal would be estate planning.
How is net worth calculated?
Assets - liabilities.
What is an investment policy statement?
A written document that lists a client’s financial objectives. It provides a framework for discipline within the wealth management process.
What are the 3 types of traditional investments?
Cash and cash equivalents
Bonds (lending investments)
Stocks (ownership investments)
What are types of cash and cash equivalents?
- CDs
- savings account
- money market account
- money market mutual funds
- US treasury bills
US treasury bill interest is subject to what kind of tax?
Only Federal income tax. Not state or local income tax.
Who can issue bonds?
US Government
Corporations
Municipalities
What is the par value of a bond?
$1000
What are investment grade bonds rated?
BBB- or higher
What are high yield bonds also known as and what are they rated?
Junk bonds
BB+ or lower
What are debenture bonds?
Unsecured bonds backed by the general credit of issuing corporation. In other words, no collateral is pledged to cover.
What is a coupon and how is it taxed?
It is the semi annual interest payment on a bond. It is subject to federal state and local income tax.
What is the difference between a treasury note and a treasury bond?
Notes have maturities up to 10 years
Bonds mature in 30 years.
What 2 types of municipal bonds are issued?
-General Obligation (GO)
-Revenue Bonds
What is the taxable equivalent yield?
The yield a corporate bond (taxable) must return in order to equal that of a municipal (tax-free) bond.
How is taxable equivalent yield calculated? (TEY)
Tax exempt yield
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1 - marginal tax rate
Name the 6 types of common stock
Growth
Income
Value
Blue Chip
Defensive
Cyclical
What is an open-end investment company more commonly known as?
Mutual fund
What are growth funds?
Companies that a growing quickly, usually do not pay dividends because the money is invested back into the company. These more commonly generate capital gains.
What are income stock funds?
The fund emphasizes income over growth. Generally have stocks of companies with long history of dividend payments.
What are corporate bond funds?
They seek a high level of income by investing 2/3+ in corporate bonds.
What kind of bond funds would an investor that wants safety and income purchase?
US government bond funds
What is the difference between closed-end and open-end mutual funds?
Closed trade at either a discount or premium relative to NAV. They are also subject to supply and demand.
Explain an EFT
For investors who want to invest in an industry without having individual securities, can be bought on margin and can be sold short. It is a low cost tax efficient portfolio.
