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Kaplan Tier 1 Financial Planning > Overview of financial products > Flashcards

Overview of financial products Flashcards

1
Q

Does each asset class have a different risk level?

A

Yes.

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2
Q

Does each asset class have a different expected return?

A

Yes.

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3
Q

What type of risk does cash have?

A

Low risk.

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4
Q

What type of risk does fixed interest investment have?

A

Low risk.

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5
Q

Why is cash a low risk investment?

A

It is relatively secure.

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6
Q

Why is a fixed interest investment a low risk investment?

A

It is relatively secure.

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7
Q

What type of income do cash and fixed interest investments make?

A

Regular and predictable income.

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8
Q

Are returns for cash low?

A

Yes.

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9
Q

Are returns for fixed interest investments low?

A

Yes.

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10
Q

What is the risk of property over the medium term?

A

Moderate risk.

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11
Q

What is medium term for investment?

A

5 to year year.

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12
Q

What is the risk of Australian shares over the medium term?

A

Moderate risk.

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13
Q

What type of income will property and Australian shares make?

A

Income that rises with inflation, coupled with appreciation in the market price of the investment.

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14
Q

What type of investment horizon do international equities have?

A

Long term investment horizon.

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15
Q

What is a long term investment horizon?

A

More than 10 years.

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16
Q

Why are property and shares long term investments?

A

They can be extremely volatile in the short term.

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17
Q

What returns can property and shares make if held for the long term?

A

Substantial future capital gains.

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18
Q

How can you describe income from international shares?

A

Unpredictable.

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19
Q

What is the 90 day bond rate used to determine?

A

What is known as the ‘risk-free’ rate of return.

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20
Q

How can investment products and product structures be categorised?

A

According to the degree to which they may be subject to the risk of capital loss.

21
Q

What is the general rule for investment risk?

A

The lower the investment risk, the lower the return, and vice versa.

22
Q

What is market risk?

A

The risk that a particular market as a whole will not perform to expectations.

23
Q

What is standard deviation?

A

It measures the spread of an investment’s likely returns based on past performance.

24
Q

What does a high standard deviation indicate?

A

Indicates that returns are unpredictable and the investment therefore has a higher risk factor

25
Q

How can investors limit risk?

A

Through diversification.

26
Q

During the portfolio construction process, what needs to be considered?

A

Client’s financial needs and objectives and their attitude to investment volatility.

27
Q

What is a risk portfolier?

A

A document that normally poses a series of questions designed to clarify the client’s attitude towards risk.

28
Q

What is asset allocation stategy?

A

The process of determining a portfolio’s mix of investment across the various asset classes.

29
Q

Does an investment portfolio need to be monitored?

A

Yes. r

30
Q

Does an investment portfolio need to be reviewed regularly?

A

Yes.

31
Q

What are the three steps of pure risk?

A

Identification of possible risks, analysis of risks and the implementation of a suitable risk strategy.

32
Q

What are the main categories of risk?

A

Property, personal and liability.

33
Q

What is the purpose of general insurance?

A

To place the insured back into the position they

would have been had the insured event not occurred.

34
Q

What does life insurance provide?

A

A lump sum payment or an income stream to support individuals who are either disabled, unable to work because of injury or illness or who have suffered a critical illness.

35
Q

What are the four main types of personal insurance?

A

Life, total and permanent disablement (TPD), income protection and trauma.

36
Q

What is superannuation?

A

Concessionally taxed structure used to accumulate funds to provide income in retirement.

37
Q

What are the two main styles of superannuation funds?

A

Defined benefit and accumulation,

38
Q

What is the most common type of superannuation?

A

Accumulation funds the most common.

39
Q

What type of structure is superannuation?

A

Trust structure managed by trustees. Superannuation funds are regulated through the SIS Act.

40
Q

Who manages superannuation?

A

Trustees.

41
Q

What does the trust deed for a superannuation account need to say?

A

The trust deed for the fund must state that the funds sole purpose is to provide income on the retirement of the fund’s members.

42
Q

Who are the two key regulators in the superannuation industry?

A

APRA and the ATO.

43
Q

What must employees contribute into their employees superannuation?

A

Minimum of 9.5% of their employee’s ordinary income to superannuation.

44
Q

What are the contributions to superannuation?

A

Contributions to superannuation include concessional, non-concessional, CGT exempt.

45
Q

What do salary sacrifice contributions allow?

A

Employees to contribute pre-tax salary amounts to superannuation to improve theirsuperannuation savings.

46
Q

How can superannuation be accessed?

A

After satisfying a ‘condition of release’,

47
Q

What is the most common condition of release for superannuation?

A

Retirement and meeting the preservation age.

48
Q

How can superannuation benefits be taken?

A

Lump sum, as a retirement income

stream such as an account-based pension, or in combination.

49
Q

Why is retirement planning advice an important service?

A

Complexity of rules and opportunity to charge higher fees.

Kaplan Tier 1 Financial Planning (10 decks)

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