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UGBA 10 > Module 3 Exam > Flashcards

Module 3 Exam Flashcards

1
Q

Cost Analysis

A

Made up of variable and fixed costs

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2
Q

Variable Costs

A

Increase as more products/services are sold

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3
Q

Fixed Costs

A

Do not change regardless of how much you sell

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4
Q

Profit Formula

A

Sales - Costs = Profits

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5
Q

Contribution Margin

A

(Selling Price) - (Unit Costs)

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6
Q

Basic Change of GDP/Econ Growth/Stability

A

Peaked in 90s, slumped in recession, currently 1.5%-3% per year

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7
Q

Planned Economy

A

Centralized government to control all or most factors of production and to make all or most production and allocation decisions

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8
Q

Market Economy

A

Individual producers and consumers control production and allocation by balancing supply and demand mediated by price

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9
Q

Mixed Market Economy

A

Compromise between planned and market economies

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10
Q

Demand in a Market Economy

A
  • The willingness and ability of buyers to purchase a product
  • Demand decreases as price increases
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11
Q

Supply in a Market Economy

A
  • The willingness and ability of producers to offer a good or service for sale
  • Supply increases as price increases
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12
Q

Market Clearing

A

Process by which buyers and sellers interact to determine a price at which supply is equal to demand, no production is wasted, and goods trade at the market (clearing) or equilibrium price
- Customers prepared to pay the market price receive their goods, customers prepared to pay less receive no goods

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13
Q

GDP

A

Total value of all goods and services produced within a given period by a national economy through domestic factors of production

A measure of aggregate output

Factors:

  • Land/physical resources
  • Capital expenditures
  • Information
  • Labor
  • Entrepreneurship
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14
Q

Factors of Production

A

Resources that a country’s businesses use to produce goods and services

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15
Q

Balance of Trade

A

Economic value of all the products that a country exports minus the value of the products imported

If more exports than imports:

  • Positive trade balance
  • Have a surplus that they can invest internationally

If more imports than exports:

  • Negative trade balance
  • Must borrow to fund the imports
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16
Q

Inflation

A

When price of goods in an economy increases over time
- Measured by calculating price of a set of goods and comparing with previous year

  • US had avg annual inflation of 2.6%
  • Deflation in Japan corresponds w low/no growth
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17
Q

National Debt

A

Amount of money a government owes to its creditors (domestic/international investors)

Government receives money from taxes and spends on programs/departments

  • National debt increases when the government spends more than it receives, and vice versa
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18
Q

Fiscal Policies

A

Government policies regarding how and how much it collects in taxes and spends on programs

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19
Q

Monetary Policies

A
  • Government policies regarding the control of the size of the money supply in US dollars
  • Government can directly or indirectly control the number of dollars in circulation
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20
Q

Financial Research Stats

A 
GDP Growth Rate: 2.2%
Inflation Rate: 1.5%
Unemployment Rates: Around 4%
Bond Rates: 2.3%-2.5%
Equity Market Average: Around $2800
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21
Q

Equity Market Averages

A

Dow 30 (most discussed) - $26000
S&P 500 (most broad) - $2800
NASDAQ (tech-heavy) - $7900

Stock/equity prices are function of:

  • future earnings/cash flows
  • perceptions of market risk
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22
Q

Company/Firm

A

Business organizations which sell goods or services with the aim of making a profit

  • Have assets such as buildings, computers, and equipment that enable them to do business
  • Assets are financed by issuing stockholders’ equity and debt
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23
Q

Accounting Equation

A

Assets = Liabilities + Stockholders’ Equity

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24
Q

Stockholders’ Equity

A
  • Funded through issuance of common stock

- Stockholders pay cash for common stock

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25
Q

Financial Seniority

A

Order in which company’s assets are paid out if company is liquidated

  • Composed of liabilities and stockholders’ equity
  • Liquidation is sale of all assets for cash and then payment of that cash to investors
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26
Q

Financial Seniority Rules

A
  • Liabilities are paid first
  • Residul cash after debt is paid to stockholders
  • Liquidation usually only occurs when company is in bad shape
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27
Q

Debt Summary

A
  • High seniority
  • Legal right to be repaid and get interest
  • Low risk, low reward
  • Risk of bankruptcy
  • Low cost of capital
  • No voting power
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28
Q

Equity Summary

A
  • No seniority
  • Earn residual cash
  • High risk, high reward
  • No bankruptcy risk
  • High cost of capital
  • Voting power in hands of shareholders
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29
Q

Secured Loan

A

Loan to finance an asset, backed by the borrower pledging the asset as collateral to the lender

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30
Q

Collateral

A
  • Asset pledged for fulfillment of loan repayment

- Ex: Land, equipment, accounts receivable, mortgage-backed securities

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31
Q

Unsecured Loan

A

Loan in which collateral is not required

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32
Q

Loan Principal

A

Amount of money loaned that must be repaid

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33
Q

Interest

A

Periodic payments that must be made on a loan or on a bond

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34
Q

Corporate Bond

A

Formal pledge obligating the issuer (the company) to pay interest periodically (usually every 6 months) and repay the principal at maturity

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35
Q

Bond Indenture

A

Contract/legal document containing complete details of a bond issue

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36
Q

Maturity Date

A

Future date when repayment of a bond principal is due from the bond issuer (borrower)

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37
Q

Face/Par Value

A

Amount of money that the bond buyer (lender) will receive on the maturity date

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38
Q

Default

A

Failure of a borrower to make payment (of interest orprincipal) when due to a lender

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39
Q

Bondholders’ Claim

A

Request for court enforcement of a bond’s terms of payment

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40
Q

Start-up Funds (1st Stage)

A
  • Founders money or friends/family

- Angel investors

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41
Q

Venture Capitalists (VC) (2nd stage)

A
  • Professional investors who manage private funds from wealthy individuals in a VC fund
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42
Q

IPO

A

First sale of a company’s stock to the general public

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43
Q

Stock Price Factors

A
  • Rises when profit margins or profit growth are expected to be high
  • Dividend yield also helps
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44
Q

Market Cap

A
  • Dollar value of all outstanding shares

- Formula: (share price) x (# shares outstanding)

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45
Q

Market Cap Sizes

A

Micro-Cap: < $250 million
Small-Cap: $250 million - $2 billion
Mid-Cap: $2 billion - $10 billion
Large-Cap: > $10 billion

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46
Q

Dividend

A

Cash payment paid by company to the stockholder for each share they hold

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47
Q

Dividend Yield Equation

A

(Annual Dividend Paid)/(Stock Price)

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48
Q

EPS (Earnings per Share)

A

(Net Income)/(# of Shares)

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49
Q

PE (Price to Earnings) Ratio

A

(Stock Price)/(EPS)

- Similar companies have similar PE ratios

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50
Q

Accounting

A

Comprehensive system for collecting, analyzing, and communicating financial information

  • Decision relevant
  • Distinct from bookkeeping
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51
Q

Accounting Users

A

Internal Decision Makers
- Use firm’s managerial accounting system

External Decision Makers (investors, unions, governments, etc)
- Use firm’s financial accounting system

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52
Q

3 Financial Statements

A

Income statement
Balance sheet
Cash flow statement

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53
Q

Financial Statement Responsibility

A

Though audited by CPAs, must be prepared under company’s management
- Legal responsibility of management

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54
Q

Private Accountant

A

Salaried accountant hired by a business to carry out its day-to-day financial activities (including bookkeeping)

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55
Q

Management Accountant

A

Private accountant who provides financial services to support managers in various business activities within a firm

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56
Q

Certified Public Accountant (CPA)

A

State-licensed accountant who can

  • offer services to public independently (only they can do audits)
  • work as a management accountant for a company
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57
Q

Audit

A

Systematic examination of a company’s accounting system to determine whether its financial reports are in accordance with GAAP, including reliably representing its operations
- Only provides reasonable assurance of no large errors

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58
Q

Generally Accepted Accounting Principles (GAAP)

A

Accounting guidelines that govern the content and form of financial reports

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59
Q

Balance Sheet

A

Financial statement that supplies detailed information about a firm’s assets, liabilities, and owners’ equity

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60
Q

Current Asset (Assets)

A

Asset that can or will be used up or converted into cash within a year

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61
Q

Liquidity (Assets)

A

Ease with which an asset can be converted into cash

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62
Q

Fixed or long term asset (Assets)

A

Asset with long-term use or value, such as land, buildings, and equipment

63
Q

Depreciation (Assets)

A

Accounting method for distributing the cost of an asset over its useful life

64
Q

Intangible Asset (Assets)

A

Nonphysical asset, such as a patent, trademark or license that has economic value in the form of an expected benefit

65
Q

Goodwill (Assets)

A

Type of intangible asset created when one company (acquirer) buys another (the target)
- $ paid by the acquirer above the target’s balance sheet value (e.g. for management team know-how)

66
Q

Current Liability (Liabilities)

A

Debt that must be paid within one year

67
Q

Accounts Payable (Payables) (Liabilities)

A

Current liability consisting of bills owed to suppliers

68
Q

Long-Term Liability (Liabilities)

A

Debt that is not due for at least one year

69
Q

Paid In Capital (Shareholders’ Equity)

A

Money the stockholders invested in the firm

70
Q

Retained Earnings (Shareholders’ Equity)

A

Earnings retained by a firm for its use rather than paid out as dividends

71
Q

Additions to Equity

A
  • New investments from stockholders increase shareholders equity as paid in capital
  • Income generated by the company increases shareholders equity
72
Q

Deductions from Equity

A
  • Payment of cash dividends decreases shareholders equity (returnon investment)
  • Losses by the company decrease shareholders equity
73
Q

Current Ratio

A

Current Ratio = Current Assets/Current Liabilities

  • Rule of thumb is should be > 2:1
  • Some large companies have < 1
74
Q

Income Statement

A

Financial statement listing a firm’s annual or quarterly revenues and expenses so that the bottom line shows the period’s profit or loss
- Also known as earnings

Profit = Revenues - Expenses

75
Q

Revenues

A

Funds/net assets that flow into a company from selling goods or services
- Can be cash or accounts receivable

  • Flows of value into a company from selling goods/services
  • Recorded when goods are delivered or when a service is performed
  • Not dependent on when payment occurs, just the good or service delivered/performed
  • Also called sales or turnover
76
Q

Expenses

A

Costs of doing business

  • Use up of value company needs to sell goods/services
  • Recorded when good or service is sold
77
Q

Cash Flow Statement

A

Financial statement describing a firm’s yearly or quarterly cash receipts and cash payments

Made up of:

  • Operating cash flows from earnings (usually positive)
  • Investing cash flows to buy new long term assets such as machinery (usually negative)
  • Financing cash flows from/to the investors (varies)

Startup: usually a positive financing cash flow as it raises money from stockholders and banks to build the business
Mature company: negative financing cash flow as it pays back its debts to the banks and pays dividends to stockholders

78
Q

Cost of Goods Sold (COGS)

A

Costs of products sold, payments to partners, or content providers

79
Q

Operating Expenses (OpEx)

A

Costs, other than sales costs, incurred by firm

80
Q

Gross Profit

A

Revenues - Cost of Revenues

81
Q

Operating Income

A

Gross Profit - OpEx

82
Q

Net Income/Profit/Earnings

A

Gross profit - all expenses including taxes

83
Q

Profit Margin Ratio

A

(Annual Net Income)/(Annual Revenues)

84
Q

Return on Equity (RoE)

A

(Annual Net Income)/(Stockholders’ Equity)

  • Cents on dollar per year per dollar invested
  • Emphasizes efficiency and maximum profit per dollar
  • Best measure of return for equity investor
85
Q

Dupont Framework

A

RoE = (Net Profit Margin) x (Asset Turnover) X (Financial Leverage)

86
Q

Net Profit Margin

A

(Net Income)/(Net Sales)

- Measure of profitability

87
Q

Asset Turnover

A

(Net Sales)/(Avg Total Assets)

- Measure of investment efficiency

88
Q

Financial Leverage (Equity Multiplier)

A

(Avg Total Assets)/(Avg Stockholders’ Equity)

  • Dependent on financial strategy; companies with low sales need high margins/leverage, and vice versa
  • Measure of financing strategy
89
Q

Inditex Case Study

A
  • Inditex (Zara) has fast fashion and this helps them command high margins
  • GAP has lower margins but higher asset turnover (sales vs quantity sold)
  • Due to poor operating performance, Nordstrom improved its financial leverage through share buybacks to decrease equity
  • Can also improve FL by increasing debt to ensure that assets are levered up/much larger than the equity financing of the company
90
Q

How Market Values Stocks

A
  • Future expectations of EPS are important

- Growth potential is a major influence

91
Q

Present Value

A
  • Cash now is preferred to cash in the future (t - # of years)

Future cash has risk

  • Represented by (r - expected return rate)
  • Higher risk should provide higher return

PV Formula: (FV)/(1 + r)^t
FV Formula: PV x (1 + r)^t

92
Q

Revenue Growth Formula

A

(Year 2 Revenue)/(Year 1 Revenue) - 1 –> express as percentage

93
Q

Money Function

A
  • Medium of exchange
  • Store of value
  • Measure of worth
94
Q

Money Definition

A

Portable, divisible, durable, stable object that serves as a medium of exchange, store of value, and a measure of worth

95
Q

Barter Problem

A

Bartering without money requires a coincidence of wants; where people need to agree to the same deal and have the same mutual wants and the same time

96
Q

Money Precursors

A

Familial Relationships –> Tribal Relationships –> Debt/Duty-based Relationships –> Tally Stick/Beads or Written Records –> Precious Metal Money

97
Q

Money Supply

A

How much money is in circulation at any given time

98
Q

M-1

A

Measure of money supply that includes only most liquid currency

Currency:
- Government-issued paper money and metal coins

Travelers’/Cashier’s Check:
- Demand deposit order instructing a bank to pay a given sum to payee where money has already been deducted from payor’s account

Checking Account (Demand Deposit):
- Bank account funds, owned by depositor, that may be withdrawn at any time by check or cash
99
Q

M-2

A

Measure of money supply that includes all of M-1 plus forms of money that can be easily converted to spendable forms

100
Q

Included in M-2 but not M-1

A

Time Deposit:
- Bank funds that have fixed maturity time and cannot be withdrawn/transferred by check

Money Market Mutual Fund
- Short-term, low risk financial security fund purchased with pooled assets of investor-owners

101
Q

Reasons to Watch Money Supply

A
  • Excessive growth in supply can lead to inflation
  • Slack (less than capacity production) damps down inflation as prices cannot rise in periods of oversupply
  • Though unemployment has fallen since 2009, so has labor force participation which is only recently increasing
102
Q

Commercial Banks

A
  • Accept deposits to make loans, profit, pay interest, and pay dividends
  • Wide variety of services
103
Q

Savings Institutions

A

Savings and Loan Associations (S&L):
- Investor owned, and focus on mortgages

Mutual Savings Banks:
- Depositor owned

Credit Unions:

  • Non-profit, co-op
  • Focus on service to group
104
Q

Financial Services provided by Banks

A

Checking accounts, deposit accounts, certificates of deposit, credit cards, loans, mortgages, etc

105
Q

Prime Rate

A

Interest rate available to a bank’s most creditworthy customers
- Is on the rise

106
Q

Bank’s Role in Creating Money

A
  • Within Fed parameters, banks increase money supply by lending out money that savers deposit
  • Can lend out leftover after reserve requirement
  • Creates new money because original depositor’s balance is in M-1, and borrower’s cash in hand is also M-1
107
Q

Reserve Requirement

A

Percentage of any deposit the bank must retain

108
Q

Fractional Reserve Banking

A

Use of a reserve requirement in order to increase money supply

109
Q

Full Reserve Banking

A

Deposits can only be loaned out if they’re over the time period of the loan

  • Keeping funds intact means higher customer fees
  • Would only be able to make a 5 year loan with a 5 year fixed savings
  • No risk of bank runs but more risky
  • Chokes off money supply due to less ease of lending
110
Q

Bank Run

A

Depositors lose faith in a bank or financial institution’s ability to repay money

  • Depositors run to bank to cash out accounts
  • Bank only has reserve requirement (10%) available
  • Bank fails
111
Q

Federal Deposit Insurance Corporation (FDIC)

A
  • Supervises banks and insures deposits in banks and thrift institutions
  • Commercial banks pay membership fees
  • Guarantees safety of all deposits of every account owner up to $250k per bank
  • Stock and mutual funds not insured
  • Has right to examine activities and accounts of member banks
112
Q

Nondeposit Institutions

A

Pension Fund:
- Nondeposit fund pool managed to provide retirement income for members

Insurance Company:
- Nondeposit institution that invests funds collected as premiums charged for insurance coverage

Finance Companies
Broker-dealers

113
Q

Federal Reserve System (The Fed)

A

Central US bank

  • Acts as government bank
  • Serves member commercial banks
  • Controls nation’s money supply
114
Q

Structure of the Fed

A
  • Board of Governors
  • Reserve Banks
  • Open Market Committee
  • Member Banks
  • Depository Institutions
115
Q

Fiscal Policy

A

How much the government spends vs how much it raises in taxes

  • Expansionary fiscal policy is government spending more than tax revenue
  • Deflationary fiscal policy is the government taxing more than it spends
  • Decided by Congress and managed by Treasury; executed by Bureau of Fiscal Service
116
Q

Monetary Policy

A

How much money the central government/bank allows there to be in circulation

  • Expansionary monetary policy is an increase in money supply
  • Deflationary monetary policy is a decrease in money supply

Controlled my managing money supply and interest rates
- Influences ability and willingness of banks to loan money

  • Managed by Federal Reserve
117
Q

Goals of Fed

A

Dual Mandate (Congress 1977)

  • Achieve price stability (low/no inflation)
  • Maximize employment
118
Q

Functions of Fed

A
  • Government’s bank
  • Bankers’ bank
  • Check clearing

Controlling Money Supply

  • Tools: Reserve requirement
  • Discount/Federal Funds Rate
  • Open-Market Operations
119
Q

Tools of the Fed

A

Reserve Requirement
- Percentage of deposits that bank must hold in cash/deposit
Discount Rate
- Interest rate at which member banks can borrow from the Fed
Federal Funds Rate
- Interest rate at which banks lend reserves to each other
Open-Market Operations
- Fed’s sale/purchase of securities in open market
- Fed buys = more money supply, Fed sells = less money supply, historically limited to treasury securities

120
Q

Financial Crisis 2008

A

Fed expanded open market operations to increase the money supply

  • Quantitative Easing (QE): Fed created money to buy treasury bonds and mortgage-backed securities (MBS)
  • QE involved Fed decreasing assets
  • Fed facilitate many bank reorganizations
121
Q

Open Market Operations Changing Money Supply

A

Process of Fed Buying Bonds:

  1. Investor sells bonds to Fed
  2. Fed keeps bonds as assets
  3. Investor gets cash which can be lent
  4. Lending encourages economic activity
  5. Only works as Fed can “create” dollars
  • Process of decreasing money in circulation is opposite of above
122
Q

Fed’s Administrative Role and “Check 21”

A
  • Historically, check clearing was important Fed function
  • Check Clearing for 21st Century Act allows receiving bank to make an electronic image of check and send to paying bank for payment
  • Paper check volumes decreased and only one processing center
123
Q

Automated Clearing House (ACH) Network

A

ACH is an electronic funds transfer system that provides interbank clearing of electronic payments for nation’s financial institutions

  • Allows businesses, government, and consumers to choose an electronic alternative for payments
  • ACH payments include internet-initiated debit/credit payments, payroll taxes, tax refunds, taxes, e-checks, and consumer bills
124
Q

International Trade

A

Links countries so that those who have a comparative advantage in make a good can make more

125
Q

Trade Barriers (Tariffs)

A

Limit trade by imposing an extra import tax

  • Tariffs only increase price so producer with a huge advantage can still compete
  • Tariffs are considered less undesirable than restrictions that stop imports
126
Q

Exchange Rate

A
  • Value of one currency compared to value of another
  • A high Euro per $ (strong dollar) rate means US tourists are encouraged but discourages European tourists
  • High rate means US can get cheaper imports but discourages US exports
127
Q

Non Tariff Barriers to Trade (NTBs)

A

Import Embargos/Quotas:
- Prohibit or limit imports
Excessive licensing, documentation, or inspection
Procurement policies

NTBs impost additional admin costs and uncertainties compared to tariffs

128
Q

Major Organizations in International Finance

A

Federal Reserve (Jerome Powell), European Central Bank (Mario Draghi), World Bank (vacant/David Malpass), IMF (Christine Lagarde)

129
Q

World Bank

A

UN agency that provides limited scope of financial services, such as funding improvements in underdeveloped countries

130
Q

International Monetary Fund (IMF)

A

UN agency of 150 nations that combined resources to promote stable exchange rates, temporary short-term loans, and other purposes

131
Q

Returns if invested at $1 in 1900

A

Equities –> Bonds –> Bills

132
Q

Risk-Return Relationship (Low –> High)

A

Treasury Bills –> Treasury Bonds –> Corporate Bonds –> Common Stock

133
Q

Bond

A

Lending to a government or a company

  • Pays a fixed amount per year
  • Good deal if interest rates go lower
  • Bad deal if rates are rising

Rising bond price means interest rates are likely to fall
Falling bond price means rates are likely going up

134
Q

Bonds and Present Value

A

Bonds are fixed income securities

  • Buyer of bond buys right to fixed future cash flows
  • Bond prices move inversely to interest rates
135
Q

Treasury Bond Market

A

Very liquid market that’s attractive to large investors such as China

Treasury is most dominant borrower

  • Supply/demand for treasury bonds set terms for borrowing by others
  • Affects mortgage borrowing, as well as auto/student loans
136
Q

Stock

A

Investment in shareholders’ equity

- Make money through dividends or selling stock for more than purchase price

137
Q

Stock/Market Indices

A
  • Way of averaging prices of a group of company stocks
  • Individual stock movements are highly correlated
  • Index useful to summarize total market movement
138
Q

Main US Indices

A
  • Dow 30 (Industrial)
  • S&P 500 (Broad Large Cap)
  • NASDAQ (Tech)
  • Russell 2000 (Small Cap)
139
Q

Personal Finance

A

Planning financial resources/liabilities to achieve life goals

140
Q

Human Capital Management

A
  • Career is fundamental source of value for investments
  • No efficient market for services
  • Maximize human capital through networking, skill development, being in growth industries, learning from roles, and negotiating better pay
141
Q

Portfolio

A

Combined holdings of all investments of any entity/person

142
Q

Diversification

A
  • Buying several different kinds of investments instead of only one
  • Purchase different securities within a category
  • Falls in one stock can be offset by rises in another
  • All risk can’t be eliminated due to economy-wide ups and downs
143
Q

Maximum Return Strategy

A
  • Stock returns are 5% greater than treasury over last 100 years, but have more volatility

Asset allocation is relative amount of funds in several investment alternatives
- Optimal asset allocation emphasizes stocks early and bonds near retirement

  • Rule of Thumb: Take age and invest that percent in bonds, rest in stocks
144
Q

Tips for Finding a Fund

A

Seek low fees:

  • 80% of mutual funds underperform
  • Find low fees in large well-run employer schemes, or in high-volume managers like Vanguard

Rebalance periodically:

  • Sell what you have too much of, buy what you have too little of
  • When stocks rise, sell a few to keep an appropriate % of stocks vs bonds
  • Can put this into safer investment like bonds/cash
145
Q

Long term investing for Retirement risks

A
  • Transfers risk from employers to employees
  • Difficult time to invest
  • Can’t trust brokers to work in your interest (Fiduciary rule withdrawn)
  • Many people on sidelines s avg 401k is $98400 and equal $4000/year retirement income
146
Q

2 Brain Systems

A

System 1 (Fastthinking)

  • Always on
  • Quick reaction to immediate stimuli
  • Loves patterns

System 2 (Reasoning self)

  • On call but slow reaction
  • Huge energy/attention use
  • Invents reasons for System 1 conclusion
147
Q

New Realities of Retirement Planning

A
  • Decreased number of defined benefit pension schemes (dependent on years worked)
  • Increased proportion of defined contribution schemes (dependent on amount saved)
  • 50% of elderly married couple and 71% of elderly singles use Social Security for 50+% of income
  • Independent Contractor model has little or no provision for pensions/benefits
148
Q

Pension Terminology

A

Contribution/Cost - Sum of money paid in by employee and/or company during the working life of the employee

Pension - Income paid to the retired employee after they have retired

149
Q

Defined Benefit Scheme

A

Defined benefit; specified benefit
- Provides a know post retirement pension income; percentage of final salary/year of employment w organization

Characteristic of Local, State, Federal governments, defense industry, Coke, 3M, UPS, etc

  • Some plans closed to new employees
150
Q

Defined Contribution Plan

A

Defined contribution; uncertain benefit

  • Contribution put in now is unknown
  • Doesn’t guarantee any benefit or monthly pension
  • Employee contribution and employer match invested to build up a fund to meet retirement needs

Typical pension nowadays is DC
- 401l, 403b are DC pension schemes

151
Q

IRAs

A
  • Designed to give same tax efficiency to people who do not have employer scheme
  • Limited contribution of $5500 is too low to significantly accumulate capital
  • Must be funded from earned income
  • Can rollover from employer scheme to IRA, but fees may happen
152
Q

Key Retirement Scheme Takeaways

A
  • DB scheme is attractive and should factor into job decision if available
  • Cashing out when changing employers has negative investment consequences, negative tax consequences, and 35% do it anyway
153
Q

Psychological Reactions that Interfere with Investing

A

Investors prone to myopic loss aversion:

  • Deeply averse to losses, can cause panic selling
  • Take comparatively little pleasure from gains
  • Not concerned with non-immediate threats
  • Tend to go with crowd
154
Q

Avoiding/Awareness of Biases

A
  • Can’t totally avoid
  • Avoid being caught up in excitement of rising market or panic of falling one
  • Invest regularly and buy/hold through good and bad times

UGBA 10 (4 decks)

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