Investment strategies Flashcards
What is dollar cost averaging?
Process purchasing securities overtime by investing, a predetermined amount at regular intervals
Reduce the effects of market price fluctuations
Does not guarantee a positive return
What is value averaging?
Aim to have the market value of the account increase at regular intervals to predetermine amounts
Mount invested or a portion is liquidated to bring the account in line with predetermined Target
Forcing the investor to buy shares, prices are low and fewer shares and prices are high, may even sell some shares
What is share averaging?
Investor purchases the same number of shares every time amount of investment varies
What is a dividend reinvestment plan? (DRIPs)
Dividends being automatically reinvested
Reinvested dividends are treated the same for tax purposes as cash dividends
What two advantages does a bond ladder have?
Provide higher yields than a portfolio, consisting entirely of short term bonds
Because one bond mature, each year cash is available to the investor
Minimize the risk of increasing interest rates
What is the disadvantage of a bond ladder?
Reduces portfolio flexibility
What is a barbell strategy with bonds?
Very long and very short term maturity’s
What is a bond bullet strategy?
Purchasing a series of bonds with similar maturity, focused around one point in time
Effective and matching duration to the cash needs of an investor
What are disadvantages of the bond barbell strategy and the bond bullet strategy?
Large portions of a portfolio may require liquidation, resulting in significant transaction cost
What is the buy and hold strategy and what is a major benefit of it?
Strategy begins with a set percentage of assets in each class
Major benefit transaction cost, and taxes are minimized
What is passive investing, also known as indexing?
Well, diversified portfolios and have low turnover rates usually invested in indexes
By adjusting the asset mix or allocation, the risk level can be matched with the needs of the investor
What is active investing?
Believe that above market returns can be achieved through security selection, market timing or both do not believe the market is perfectly efficient
Security selection and marketing working in concert with each other
Two methods that investors used to make security selections are fundamental analysis and technical analysis
What is the four step process to shortselling?
- Stock from another investors margin account.
- Sell the borrowed stock in the open market.
- Purchased the stock in the open market.
- Replace borrowed stock.
When shorting a stock, how are dividends paid?
Pay dividend to the registered owner
How is voting handled with shortselling stocks?
Purchaser of borrowed shares has voting rights
Investor who stock with borrowed loses voting rights