Client Recommendations & Investment Strategies

Question 1

Draw a table of business formations

Question 2

What’s the difference between living and testamentary trust?

Answer 2

Testamentary is based on will.

Question 3

What’s the difference between simple and complex trust?

Answer 3

Simple: must distribute income annually, so it’ll be taxed annually

Complex: may accumulate, so only taxed when it’s distributed

Question 4

Trust: what’s the difference between per stirpes vs. per capita?

Answer 4

Say there are three brothers, ⅓ each
A brother dies, and has 5 kids
Usually, his kids split his ⅓, this is called per stirpes
If it is now split 7 ways, then it’s called per capita

Question 5

CAPM Theory

Answer 5

How much an investment is expected to return depends on how risky it is compared to the market

Question 6

Efficient Market Hypothesis

Answer 6

Weak: price/volume, historical info … technical analysis can’t consistently beat it

Semi strong: public info … technical and fundamental can’t consistently beat it

Strong: public and private info … not even insider trading can consistently beat it

Question 7

Modern Portfolio Theory

Answer 7

Diversify by building a portfolio with different asset classes that don’t correlate (stocks vs bonds)

Question 8

The Efficient Frontier

Answer 8

For every return, there is an optimal risk level, plotted on the curve line. Anything below the curve indicates that the portfolio is suboptimal.

Question 9

403B

Answer 9

401k but for public schools and tax exempt orgs (non profits, religious etc)

4 - retirement
B - boys - school

Question 10

457

Answer 10

401k for government workers

Question 11

Money Purchase Plan

Answer 11

Employer have to contribute but employees don’t

Question 12

Defined benefit vs defined contribution

Answer 12

Defined benefit: % of average salary of last 3 years … benefits older employees

Defined contribution: like 401k … however much you put into it the company will match X%

Question 13

ERISA

Answer 13

Employee Retirement Income Security Act:

401K must have at least 3 options (moderate, aggressive, conservative) for people to choose

Eligibility (21 yrs old, 1000 hours/12 months works): This means employers are not required to offer 401k to those under 21, but they can.

Question 14

How does the 4 limit/stop work?

Answer 14

Buy limit

Sell limit (take profit): once limit price is hit, you can’t sell for lower than this

Buy stop

Sell stop (stop limit): next market order once stop is hit

Question 15

Do growth companies have high or low PE ratios?

Answer 15

High

Question 16

High negative correlation means high or low diversification?

Answer 16

High

Question 17

DCA

Answer 17

Average cost < Average price

Question 18

QDRO

Answer 18

When a couple divorces, their retirement fund:

He/she can withdraw without the 10% penalty before turning 59.5, but it’ll still be taxed as income

Question 19

AGI (Adjusted Gross Income)

Answer 19

It’s the income that you pay tax on.

The alimony you receive is part of AGI.

But child support is not.

Question 20

Step up basis (inheritance tax)

Answer 20

Scenario A: grandma bought 1000 shares of Cola at $1/share (value of $1k), dies, and at her date of death, it’s worth $100/share (value of $100k). You inherit it and sell it for $105k. Your capital gain (step up basis) is only $5k.

Scenario B: grandma gives it to you right before she dies. Now your capital gain is $104k!!!

Question 21

How does estate tax work?

Answer 21

Estate refers to everything of value (all assets and liabilities)

Valuation can be done either at date of death OR 6 months later

Then choose the lower of the two (death to 6 months after death) for estate tax

As long as the estate tax is paid within 9 months of the death date

Question 22

How does gift tax work?

Answer 22

Limit is $17k for the giver
If you go over the $17k, you have to file a tax form which adds to your lifetime limit (but you likely won’t need to pay tax on that)

Question 23

JTWROS: what does it stand for, who gets it, probate required?

Answer 23

Joint account: If one dies, the account is automatically transferred without a probate (formal process… will and etc)

Always 50/50

Question 24

JTIC: what does it stand for, how many people can use it, who gets the money, probate required?

Answer 24

Joint accounts for non spouses:
When one dies (say brother sister account), his portion goes to his estate
For JTIC, you do have to designate %
More than 2 individuals can use it
Does not avoid probate

Question 25

TBE: what does it stand for, who can use it, process of giving

Answer 25

Tenancy by the Entirety account: ONLY married. The most important difference vs JTWROS and TIC is that the consent is required from one tenant before the other can give away her interest.

This is usually used for real
estate.

Single owner — no separate shares

Has protection against the other party’s creditors.

Question 26

Totten Trust (POD), and does it require probate?

Answer 26

Grandpa wants to gift assets to grandchildren, but only upon his death because he wants access to them while he’s alive

requires no probate

Question 27

529 plan

Answer 27

Donor retains control
Doesn’t have to give it: AS LONG AS IT’S USED FOR EDUCATION PURPOSES
So the parents can use it themselves to go back to school

9 = jiu = long

Question 28

Coverdell plan

Answer 28

Similar to 529 but have a $2k per child per year limit

Cover = limit
Dell = student computer

Question 29

The Uniform Gifts to Minors Act (UGMA)

Answer 29

It’s like setting up a savings account for your kids
No limit on how much you can gift (although you could pay taxes)
You can re-register a minor’s account solely in her age at what age
Age of majority (legal age depending on what state you are in)
Irrevocable gifts
Unlike 529, this doesn’t have to be used for education

Uma Thurman giving her baby a gify

Question 30

UTMA

Answer 30

Like UGMA, but you can designate an age from legal age up to 25

Question 31

Summary Plan Document

Answer 31

Your 401k sponsor must give you this

Question 32

Investment Policy Statement

Answer 32

Your 401k sponsor hires an advisor. That advisor is not required to give you an IPS.

Question 33

For traditional IRA, at what age must you start withdraw money?

Answer 33

70.5

Question 34

For most retirement funds, at what age can you start withdraw must?

Answer 34

59.5, or face a 10% fee

Question 35

Trust: what supplies the assets?

Answer 35

Settlor, Grantor (can be trustee, beneficiary)

Question 36

Trustee

Answer 36

Individual or entity appointed to manage and administer the assets held in the trust according to the terms outlined in the trust document

Question 37

Beneficiary

Answer 37

The person who gets the property

Question 38

Remainderman

Answer 38

Heirs of beneficiary

Question 39

Revocable vs Irrevocable Trust

Answer 39

Revocable: settlor can change it

Irrevocable: settlor gives up all ownership

Question 40

Who’s the B/D for listed exchanges and unlisted (OTC) exchanges?

Answer 40

Listed: DMM / Specialists

OTC: MM

Question 41

Dividend Discount Model

Answer 41

Use dividends to figure out the value of a stock.

Present value of the stock = Dividend per share / required rate of return

Ex: Suppose we have a company that just paid a dividend of $2.00 per share. If we’re looking for a 10% return on our investment, our price is 2/10% = $20

Question 42

When there is a triggering event, how soon do you have to file the 8k?

Answer 42

4 business days

Question 43

Net capital requirement for IA

Answer 43

Discretionary: 10k

Custody: $35k