Client Recommendations & Investment Strategies Flashcards
(43 cards)
Draw a table of business formations
What’s the difference between living and testamentary trust?
Testamentary is based on will.
What’s the difference between simple and complex trust?
Simple: must distribute income annually, so it’ll be taxed annually
Complex: may accumulate, so only taxed when it’s distributed
Trust: what’s the difference between per stirpes vs. per capita?
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
CAPM Theory
How much an investment is expected to return depends on how risky it is compared to the market
Efficient Market Hypothesis
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
Modern Portfolio Theory
Diversify by building a portfolio with different asset classes that don’t correlate (stocks vs bonds)
The Efficient Frontier
For every return, there is an optimal risk level, plotted on the curve line. Anything below the curve indicates that the portfolio is suboptimal.
403B
401k but for public schools and tax exempt orgs (non profits, religious etc)
4 - retirement
B - boys - school
457
401k for government workers
Money Purchase Plan
Employer have to contribute but employees don’t
Defined benefit vs defined contribution
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%
ERISA
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.
How does the 4 limit/stop work?
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
Do growth companies have high or low PE ratios?
High
High negative correlation means high or low diversification?
High
DCA
Average cost < Average price
QDRO
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
AGI (Adjusted Gross Income)
It’s the income that you pay tax on.
The alimony you receive is part of AGI.
But child support is not.
Step up basis (inheritance tax)
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!!!
How does estate tax work?
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
How does gift tax work?
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)
JTWROS: what does it stand for, who gets it, probate required?
Joint account: If one dies, the account is automatically transferred without a probate (formal process… will and etc)
Always 50/50
JTIC: what does it stand for, how many people can use it, who gets the money, probate required?
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
