PF final (LAST ONE CMON)

Question 1

What are the 5 steps to the building a solid financial foundation pyramid?

Answer 1

1. Building a solid cash flow
2. Ensuring proper protection
3. Eliminate Debt
4. Emergency fund
5. Investments

Question 2

How much money USD do you need to make annually to be in the top 1% globally?

Answer 2

60k

Question 3

What are the three things that honor the good fortune god has graced upon you?

Answer 3

Invest wisely
Obtain wealth
Help others

Question 4

Who makes more money? Person A investing 2k from 19-27 or person B investing 2k from 27-65?

Answer 4

Person A by 700k

Question 5

What is rule 1,2, & 3 of investing?

Answer 5

1. Buy all the boats
2. Don’t get off the rollercoaster
3. Buy the dips

Question 6

What are some patterns that the stock market has shown in terms of going up or down?

Answer 6

It goes up 70% of the time. It goes up slowly and down very quickly.

Question 7

What did the Delbar study show?

Answer 7

Delbar study showed that the average investor only made 4% when the s&p made 11%. People who get off the boats for emotional reasons suffer financially.

Question 8

Who are better investors men or women? What did the Fidelity study say is the best investor?

Answer 8

Women are better investors because they are more patient and trade less. Fidelity study showed dead people are the best

Question 9

What is the rule of thumb for what investment vehicle to use?

Answer 9

If you are going to use money within 5 years use a high interest savings account. Longer than that put it into the stock market.

Question 10

What is a stock?

Answer 10

Ownership in a company that entitles you to voting rights. Public companies are traded on an exchange

Question 11

What makes a stock good to invest in?

Answer 11

Whether their share price is undervalued or overpriced, not about if a company is good or bad.

Question 12

What are dividends? what type of companies pays dividends?

Answer 12

Large companies limited growth pay out dividends. Dividends are distributions of company’s profits.

Question 13

Should you reinvest dividends?

Answer 13

Dividends should be automatically reinvested by your account. Reinvesting gives you a bigger % of ownership but not more value

Question 14

What is Flight to safety?

Answer 14

It’s when the stock market is performing poorly so people move to bonds in a panic. You should sell your bonds and move to stocks if possible

Question 15

What are the three geographical locations in stocks? Give examples of nations

Answer 15

NorthAmerican (CA, USA)
International (West Europe, Japan)
Emerging markets (China, India)

Question 16

What is the three-factor model when investing?

Answer 16

1. Buy stocks not bonds
2. Buy small companies
3. Buy value companies

Question 17

What does Barry suggest investing in?

Answer 17

all three geographical markets, both small mid and large cap, and both value and growth stocks (everything)

Question 18

What are the rebalancing rules?

Answer 18

Only rebalance max 1 time a year. Rebalance with new money. Buy low (the losers)

Question 19

Why are ETFs better than mutual funds?

Answer 19

Only one set of fees (MER) and they’re lower. Same amount of diversification. Can be traded at any point in the day. More tax efficient

Question 20

On average is passive for active investing better?

Answer 20

Passive is better. Not doing anything usually gets in the 21st%

Question 21

What were the results of the Bessembinder study?

Answer 21

4% of the stock market drove the majority of the wealth. Nearly impossible to pick the winners

Question 22

What’s the idea of timing the market? is it feasible?

Answer 22

Timing the market is when you try to strategically buy low and sell high. It’s nearly impossible to do and you’re better off just putting your money in as soon as you can.

Question 23

What purpose to financial advisors have that allow their clients to do better?

Answer 23

Their clients do 1.82% better because the
1. advisors allocate their investments into equities,
2. they have a sound withdrawal strategy,
3. they’re tax efficient,
4. buy good investment products, 5. help clients with goals/needs/timelines.

Question 24

Are REIT risky?

Answer 24

individual REIT are but not ETFs

Question 25

How do you become an accredited investor? what does this title give you access to?

Answer 25

1. exceed $5m in assets
2. income more than 200k per year or 300k combined (w/ partner)
3. financial investments of 1m with a spouse or solo
   Being an accredited investor gives you access to hedge funds which are super risky “home run swingers”. If you’re not an accredited investor you must have a large initial deposit.

Question 26

What are the fees for a hedge fund? how long do they stay open on avg?

Answer 26

Fees are 2% flat and 20% if surpass a return goal. 1/3 hedge funds close every year. They usually last 5 years.

Question 27

A target date funds good?

Answer 27

They’re very popular and simple to use. They however, put bonds in early and often, you don’t get to choose the equity class and can have higher fees than ETFs

Question 28

What are the 6 steps in planning for retirement?

Answer 28

1. set a goal for how much you want to spend every month
2. Determine the before tax amount of 1
3. Apply inflation
4. divide 3 by withdrawal rate (4% is standard)
5. estimate how many years until you retire
6. Calculate how much you need to invest each month to reach your goal.

Question 29

What strategy should you use if you want to leave a lot of money behind after retirement? what about if you want to spend it all?

Answer 29

You should use a fixed distribution strategy if you want to leave a lot of money behind. You should use a Flex distribution strategy if you want to spend it.

Question 30

What is Barry’s advice on Annuities? what about a cash reserve in retirement?

Answer 30

Barry says that annuities are no good because you lock your money up and lose liquidity. Only benefits those that live super long.

Question 31

What are market makers?

Answer 31

they are middlemen who hold lots of stock so that people can buy/sell whenever.

Question 32

What are the two types of brokerage firms? do their advice help?

Answer 32

There are discount brokerage firms who don’t advise and just execute trades, and full-service brokerage firms who do offer advice and trade. Recommendations don’t lead to better performance.

Question 33

What does it mean to buy a stock on margin? What about shorting a stock?

Answer 33

Buying on margin means to borrow money in order to buy stock. This is risky because if you lose than you owe losses + interest.

Question 34

What are the two ways to evaluate a stock?

Answer 34

Technical: based on historical price patters
Fundamental: based on the firm’s characteristics.

Question 35

What are the 4 firm specific characteristics?

Answer 35

Liquidity, efficiency, financial leverage, and profitability.

Question 36

What factors increase or decrease a stock’s price in an industry analysis?

Answer 36

1. Interest rates: low rates mean higher value
2. Low inflation
3. Strong industry
4. National Economic growth
5. Good management decisions

Question 37

What are the 2 ways to value a stock?

Answer 37

1. Intrinsic valuation: analyzes cash flows, rate of return, etc.
2. Relative valuation: compares it to other similar companies
3. Discount dividend model: values stock based on future dividend payments

Question 38

What are some bond characteristics?

Answer 38

call feature: able to recall early
Sinking fund: a pit of money set aside by a corp. to repurchase bonds
convertible feature: can turn bonds into stock
extendible feature: can extend the maturity date
Put feature: can redeem the bond early (investor’s call)

Question 39

What are the different types of yields with a bond?

Answer 39

Current yield: coupon rate/current market price
Yield to maturity: (PV table) discount or premium bond
Yield to call: The yield on a bond if the issue remains to its call date.

Question 40

What is the term structure of interest rates? what does it mean if the graph is sloped upward? downward?

Answer 40

The term structure of interest rates is a graph showing the interest rates for bonds with different term lengths. If it’s sloped upward then there is a faith in the long-term market. Inverted yield curve (downward) means people think interest rates will be going down.

Question 41

What are the three theories to explain why term structures of interest rates are shaped.

Answer 41

liquidity preference theory: Investors require a premium in lower term bonds
Pure expectations theory: graph reflects future interest rates
Market segmentation: shape is determined by supply and demand

Question 42

What is the 6 types of risk from investing in bonds?

Answer 42

1. inflation risk
2. interest rate risk
3. default risk
4. Call risk
5. Reinvestment risk
6. liquidity risk

Question 43

What are the 3 investment strategies for bonds?

Answer 43

Interest rate strategy: select bond length based on interest rate prediction
Passive strategy: invest in a diversified portfolio of bonds
Maturity matching strategy: invest in bonds that meet your spending needs

Question 44

What is open end mutual funds? closed end?

Answer 44

sell shares directly to investors who can cash in later. Closed ends can’t cash in