Clients & Strategies Flashcards
1
Q
What’s a Sole Proprietorship?
A
A Firm owned by a single Individual
2
Q
What’s a Partnership?
A
A Firm made up of 2+ Individuals
3
Q
What are the 4 types of Partnerships?
A
General Partnership (GP)
Limited Partnership (LP)
Limited Liability Partnership (LLP)
Master Limited Partnership (MLP)
4
Q
What’s a General Partnership (GP)?
A
A Partnership where all Partners share Responsibilities, Assets, Profits & Losses, Financial & Legal Liabilities
5
Q
What’s a Limited Partnership (LP)?
A
A Partnership made up of a single General Partner & multiple Limited Partners
6
Q
What’s the Liability of the General Partner in an LP?
Limited Partnership
A
Unlimited Liability
7
Q
What’s the Liability of the Limited Partner(s) in an LP?
Limited Partnership
A
Limited Liability up to the amount they’re invested
8
Q
What’s an LLP?
Limited Liability Partnership
A
A Partnership where all Partners have Limited Liability in the Firm up to the amount they’ve invested
9
Q
What’s a Corporation?
A
A Legal Entity w/ Management, Owners, & Shareholders that operates separately from its Owners
10
Q
What are the 3 types of Corporations?
A
B Corporation
C Corporation
S Corporation
11
Q
What’s a C Corporation?
A
A Double Taxation Corporation
12
Q
What’s Double Taxation?
A
Corporate Income is Taxed
Dividends to Shareholders are Taxed as Income
13
Q
Are Corporate Owners & Shareholders Liable?
A
No, they have Limited Liability
14
Q
What’s an S Corporation?
A
A Pass-Through Corporation w/ a 100- Shareholders
15
Q
What’s a Pass-Through Firm?
A
A Firm that passes all of its Taxes on to another Individual(s)
16
Q
What type of Stock can an S Corporation issue?
A
Only Common Stock
17
Q
What’s a Limited Liability Company (LLC)?
A
A Pass-Through Firm that protects its owners from Personal Liability
18
Q
What’s a Will?
Letter Testamentary
A
A Court-Recognized Document that governs how an Individual’s Assets are distributed & processed through Probate court after Death
19
Q
Who’s a Testator?
A
The Maker of a Will
20
Q
Who’s an Executor?
A
An Individual who Manages & Administers a Will, Trust, or Estate
21
Q
Who’s a Beneficiary?
A
Person(s) that receive Ownership of Asset(s) within a Policy who are designated ‘Per Stirpes’ or ‘Per Capita’
22
Q
What’s a Beneficiary Per Capita Desgnation?
Per Head Distribution
A
When Asset(s) are distributed Evenly
23
Q
What’s a Beneficiary Per Stirpes Desgnation?
A
When Asset(s) are distributed Unevenly
24
Q
What are the 3 types of Beneficiaries?
A
Eligible Designated Beneficiary
Designated Beneficiary
Non-Designated Beneficiary
25
What's an Eligible Designated Beneficiary
A Beneficiary where Distributions are taken over the Life of the Beneficiary after the Owner’s Death
26
Who are the 4 Persons that Qualify as Eligible Designated Beneficiaries?
Disabled Individual
Individual Max 10 Years younger than the Deceased Owner
Minor Child
Spouse
27
What's a Designated Beneficiary?
A Beneficiary where Distributions must be taken within 10 Years of the Owner’s Death
28
What's a Non-Designated Beneficiary?
A Beneficiary where Distributions must be taken within 5 Years of the Owner’s Death
29
What's a Trust?
A Legal Entity w/ Asset(s) that grants a 3rd Party the Legal Title to those Asset(s) for the benefit of the Beneficiaries
30
Who's a Trustor?
| Grantor or Settlor
The Maker of a Trust
31
Who's a Trustee?
A Person or Firm that holds the Legal Title to the Asset(s) within a Trust and Manages & Administers the Trust for the benefit of the Beneficiaries
32
What's an Irrevocable Trust?
Trusts that can’t be Modified or Terminated w/out the Authorization of the Beneficiary
33
What's a Revocable Trust?
Trusts that can be Modified or Reclaimed by the Trustor
34
What's a Simple Trust?
A Trust where all of the Net Income earned from the Assets must be distributed in the year it was earned
35
What's a Complex Trust?
A Trust that can accumulate & distribute any Net Income earned from the Assets at any time
36
What's a Living Trust?
| *Inter Vivos* Trust
The standard Trust that avoids Probate Court
37
What's a Charitable Firm & Foundation?
A Firm that Qualifies as Tax Exempt under IRS Code 501(c)3
38
What are 6 types of Charitable Firms & Foundations?
Charitable Firm
Museum
Private College or University
Private Hospital
Religious Firm
Trade School
39
What's a Donor-Advised Fund?
A Fund created for the sole purpose of supporting a Charitable Firm
40
What's Suitability?
An Ethical, Enforceable Standard regarding Investments that Financial Professionals are held to when dealing w/ Clients
41
What are the 6 NonFinancial Client Profile Investment Considerations?
Attitude
Behavioral Finance
Demographics
Experience
Life Events
Values
42
What's Behavioral Finance?
The Study of how Psychological Influences & Biases affect the Financial Behaviors of Investors
43
What's an Investor's Risk Tolerance?
The Degree of Uncertainty that Investors can Tolerate w/ regard to a negative change in the Value of their Portfolio
44
What's an Investor Time Horizon?
The period of time an Investor expects to hold an Investment until the $$$ is needed
45
What's a Qualified Retirement Plan?
An Employer-Sponsored Retirement Plan that meets the requirements of the IRS, DOL, & ERISA and offers certain tax benefits to Employees & Employers
46
What are the 6 Requirements for a Retirement Plan to be Qualified?
Approved by the IRS
For the Exclusive Benefit of the Employees & Beneficiaries
Formally Written & Communicated to Employees
Have a defined Vesting Schedule
No Discrimination in Favor of the ‘Prohibited Group'
Permanent
47
Who are the 3 Individuals that comprise the Prohibited Group within a Qualified Retirement Plan?
Highly Compensated Employees
Officers
Shareholders
48
What are the 2 types of Retirement Plans?
Defined Benefit Plan
Defined Contribution Plan
49
What's a Defined Benefit Retirement Plan?
A Retirement Plan where an Employer guarantees a set mthly payment for life or a lump sum payment at Retirement
50
What's a Defined Contribution Retirement Plan?
A Retirement Plan that an Employee & Employer Contributes to & the Funds grow over the Employee’s working years
51
What's a QDIA within a Defined Contribution Plan?
| Qualified Default Investment Alternative
The Default Investment selected for an Employee if they haven’t selected their own
52
What are the 2 Tax Benefits of a Qualified Retirement Plan?
Contributions & Earnings may be Tax-Deferred, Tax-Deductible, & Grow Tax-Free
Lump-Sum Distributions are Eligible for Favorable Tax Treatment
53
What's an Individual Retirement Account (IRA)?
A Qualified Defined Contribution Retirement Account
54
What's a Traditional IRA?
| Individual Retirement Account
An IRA that Individuals can open to invest Pre-Tax Earned Income and grow Tax-Deferred
55
What are the 4 types of Earned Income?
Commissions
Professional Fees
Salaries
Wages
56
What are the Traditional & Roth IRA 2023 Contribution Limits?
Age 50- can contribute $6,500-
Age 50+ can contribute $7,500-
57
What's a Rollover?
Moving Funds from one Account to another
58
What are the 2 types of Rollovers?
Direct
Indirect
59
What's a Direct Rollover?
| Transfer
A Rollover that can be immediately initiated between 2 Accounts electronically
60
What's an Indirect Rollover?
| 60-Day Rollover
A Rollover where the Funds are withdrawn via Check & Deposited into the New Account within 60 Days
61
Which 2 Retirement Accounts can you only Initiate Indirect Rollovers for Once per Year?
Traditional IRA to Traditional IRA
Roth IRA to Roth IRA
62
What 3 things happen when an Indirect Rollover is Initiated via a Check Written out to You?
Your Employer must Withhold 20% of the Funds
You must Deposit 100% of the Funds into the New Account within 60 Days
You are Refunded the 20% Withholding on your next Tax Return
63
What 3 things happen when you Exceed the Traditional IRA Contribution Limit?
Incur a 6% Penalty Annually until Removed
Tax Deferred ✖
Tax Deductible ✖
64
What's a Traditional IRA Non-Qualified Withdrawal?
| Distribution
Age 59.5- Withdrawals incur Income Tax & 10% Penalty
65
What are the 8 Exceptions for a Retirement Plan Non-Qualified Withdrawal?
| Distribution
Childbirth or Adoption up to $5K
Death of the Account Owner
Divorce Decree
Higher Education Expenses for You or a Qualified Family Member
Permanent Disability or Terminal Illness of the Account Owner
Purchase or Rebuild of 1st Home for You or a Qualified Family Member w/ a Lifetime Limit of $10K
Qualified Rollover
Unreimbursed Medical Expenses in Excess of 10% of your Adjusted Gross Income (AGI) or 7.5% if you are 65+
66
What's a Roth IRA?
| Individual Retirement Account
An IRA that Individuals can open to invest After-Tax Earned Income that grows Tax-Free w/ Tax-Free Withdrawals at Retirement
67
What are the Roth IRA 2023 Eligibility Limits?
Single MAGI $138K to $153K
Married MAGI $218K to $228K
| Modified Adjusted Gross Income
68
What are the Roth IRA 2023 RMDs?
| Required Minimum Distribution
There are No RMDs for Roth IRA's
69
What's a Simplified Employee Pension (SEP) IRA?
| Individual Retirement Account
An IRA that a Self-Employed Individual or Partnership can open to invest Pre-Tax Earned Income and grow Tax-Deferred
70
What are the 3 Requirements to be Eligible for a SEP IRA?
| Individual Retirement Account
Age 21+
Earning $750+ from the Employer
Who has worked for the Employer for 3 of the last 5 years
71
Who are the 2 Individuals who aren’t Eligible for a SEP IRA?
| Individual Retirement Account
Employees who are in a Union Agreement that bargains for Retirement Benefits
Immigrants w/out papers who don’t receive Compensation from Employer
72
What are the 4 SEP IRA Contribution Rules?
| Individual Retirement Account
Issued by the Employer/Self-Employed Individual only
Amount determined by Employer annually
Each Employee must receive the same amount
Employees manage the Investment decisions
73
What are the SEP IRA 2023 Contribution Limits?
| Individual Retirement Account
Max of 25% of an Employee's Income
Max of $66K
74
What's a SIMPLE IRA?
| Savings Incentive Match Plan for Employees
An IRA that an Employer or Self-Employed Individual w/ 100- Employees can open to invest Pre-Tax Earned Income and grow Tax-Deferred
75
What are the Simple IRA 2023 Contribution Limits?
| Individual Retirement Account
Age 50- can contribute $15,500-
Age 50+ can contribute 19,000-
76
What are the Simple IRA 2023 Employer Matching Contribution Limits?
| Individual Retirement Account
A Non-Elective Contribution of 2% Employee Salary
A $-for-$ Elective Contribution up to 3% Employee Salary
| Either Or
77
What are the 2023 RMDs for Traditional, SEP, & SIMPLE IRA's?
| Required Minimum Distributions
April 1 after Age 73
25% Tax Penalty if no RMD is taken
10% Tax Penalty if Corrected in a Timely Manner
78
What's a 401(k) Plan?
A Qualified Defined Contribution Retirement Plan where an Employee Elects a % of their Salary to deposit into the Account
79
What are the 2 types of 401(k) Plans?
Roth 401(k)
Traditional 401(k)
80
What's a Roth 401(k) Plan?
An After-Tax 401(k) Plan
Tax Deductible ✖
Withdrawals are Tax-Free 🗸
81
What's a Traditional 401(k) Plan?
A Pre-Tax 401(k) Plan
Tax Deductible 🗸
Withdrawals are Taxed ✖
82
What's a 403(b) Plan?
| Tax-Deferred Annuity (TDA) or Tax-Sheltered Annuity (TSA)
A Qualified Defined Contribution Retirement Plan for specific Employees of Public Schools & Other Tax-Exempt Firms
| Traditional & Roth versions offered
83
What's a 457(b) Plan?
A Qualified Defined Contribution Retirement Plan offered to Employees of State & Local Gov.’s and some Nonprofit Firms
| Traditional & Roth versions are offered
84
What are the 401(k), 403(b), & 457(b) Plan 2023 Contribution Limits?
Age 50- you can contribute $22,500
Age 50+ you can contribute $30,000
85
What's a Non-Qualified Retirement Plan?
An Employer-Sponsored Retirement Plan that meets the requirements of the IRS, DOL, but not ERISA
86
What's a Coverdell Education Savings Account (ESA)?
A Trust w/ After-Tax Tax-Deferred Cash that’s used to pay Qualified Education Expenses for a Designated Beneficiary for K-12 & College
87
What are the 3 Qualified Education Expenses for an ESA?
| Coverdell Education Savings Account
Academic Tutoring & Special Needs Services
Books & Equipment
Tuition & Fees
88
What are the ESA 2023 Contribution Limits?
| Coverdell Education Savings Account
Single AGI of $95K-$110K &
Married AGI of $190K-$220K:
$2K- / year / Beneficiary
| Adjusted Gross Income
89
What are the ESA Age Restrictions?
| Coverdell Education Savings Account
Age 18-
Exceptions for Special-Needs Beneficiary
90
What happens to an ESA when the Beneficiary turns 30?
| Coverdell Education Savings Account
The Account must be Fully Liquidated or Rolled Over to another Beneficiary within 30 Days
91
Are ESA Withdrawals Tax-Free?
| Coverdell Education Savings Account
Yes, for Qualified Education Expenses
92
What's a 529 Plan?
| Qualified Tuition Programs
After-Tax Tax-Deferred Accounts that can be used to pay Qualified Education Expenses
93
What are the 2 types of 529 Plans?
529 Education Savings Plan
529 Prepaid Tuition Plan
94
What's a 529 Education Savings Plan?
A 529 Plan for K-12
95
What's a 529 Prepaid Tuition Plan?
A 529 Plan for College/University
96
What are the 4 Qualified Education Expenses for 529 Plans?
Registered Apprenticeship Program Expenses
Room & Board
Student Loan Debt Repayment
Tuition & Fees
97
What are the Contribution Limits for 529 Plans?
Single Contributions: $17K- Annually or $85K- for a Lump-Sum 5/yr period
Married Contributions: $34K- Annually or $170K- for a Lump-Sum 5/yr period
Account Total Contributions: $235K to $529K depending on the State
| All Contributions are considered Gifts
98
Are 529 Plan Withdrawals Tax-Free?
Yes, for Qualified Education Expenses up to $10K/yr
99
What are the Penalties for a Non-Qualified Withdrawal for an ESA or 529 Plan?
Ordinary Income Taxes
Fees
10% Penalty
100
What's a Gift Tax?
Taxes incurred on Gifts that are above Thresholds
101
What are the 6 Qualified Gifts?
Cash
Fine Art
Patents
Real Estate
Royalties
Securities
102
What are the 4 Non-Qualified Gifts?
Educational Expenses
Medical Expenses
Gifts to Spouses
Gifts to Political Organizations
103
What are the 2023 Gift Tax Contribution Limits?
Single Contributions: $17K- Tax-Free Annually & Lifetime Max of $12.92M
Married Contributions: $34K- Tax-Free Annually & Lifetime Max of $25.84M
104
What's a Uniform Gifts to Minors Account (UGMA)?
A Custodial Account (w/ one Custodian) that provides After-Tax Irrevocable Gifts to one Minor
105
What's a Uniform Transfers to Minors Accounts (UTMA)?
A Custodial Account used to Transfer Financial Asset(s) to Minors & is an extension of UGMA
106
How are Earnings Taxed within a UGMA?
| Uniform Gifts to Minors Account
1st $1,250 is Tax-Free
2nd $1,250 is Taxed at Minor Tax Rate
$2,500+ Taxed at Parent Tax Rate
107
What's a Health-Savings Account (HSA)?
A Tax-Advantaged Account for Eligible Individuals covered under a HDHP to save for Qualified Medical Expenses
| High Deductible Health Plan
108
What are the 4 Eligibility Requirements for a HSA?
| Health-Savings Account
Aren’t enrolled in Medicare
Aren’t claimed as a Dependent on someone else’s Tax Return
Have a Qualified HDHP
Have no other Health Coverage
109
What are the HSA 2023 Contribution Limits?
| Health-Savings Account
Age 55- Max $3,850
Age 55+ Max $4,850
Max $7,750 for a Family
110
When can you use HSA Funds?
| Health-Savings Account
After the Deductible for your HDHP has been reached
| High Deductible Health Plan
111
What happens if you use HSA Funds for Non-Qualified Health Expenses?
| Health-Savings Account
Age 65- incur Income Tax & a 20% Tax Penalty
Age 65+ incur only Income Tax
112
What are the HDHP 2023 Deductible Limits?
| High Deductible Health Plan
Min. $1,500 for an Individual
Min. $3,000 for a Family
113
What's a Health Insurance Deductible?
How much $$$ you are required to pay for Qualified Health Expenses before the Insurer provides relief
114
What's an Embedded Health Insurance Deductible?
A Family Health Plan where if only one Family Member incurs Health Expenses, then they Qualify for the Individual Deductible Limit
115
What's an Aggregate Health Insurance Deductible?
| Non-Embedded
A Family Health Plan where if more than one Family Member incurs Health Expenses, then they Qualify for the Family Deductible Limit
116
What's a Financial Account?
An Account created w/ Financial Institutions to Store & Manage Asset(s)
117
What's a Brokerage Account?
A Financial Account used for Investing Cash
118
What's a Cash Account?
| Type 1
A Traditional Brokerage Account where Investors must deposit Funds to purchase Securities with
119
What are the 2 types of Brokerage Accounts?
Cash Account (Type 1)
Margin Account (Type 2)
120
What's a Margin Account?
| Type 2
A Brokerage Account Funded by a Loan from a BD that a Client must deposit 50% of the Purchase Price of a Security in order to Purchase
| Broker-Dealer
121
What's a Margin Agreement within a Margin Account?
| Hypothecation Agreement
An Investor pledges the Securities in the Account to be used as Collateral by the BD
| Broker Dealer
122
What's a Money Market Account (MMA)?
| Money Market Deposit Accounts (MMDA)
An Interest bearing Checking or Savings Account offered by a Bank or Credit Union
123
What are the Benefits of an MMA?
| Money Market Account
Generally pays ▲ I/R than regular Savings Accounts
May come w/ a Debit Card and limited Check Writing Privileges
124
What's a Joint Account?
An Account that 2+ Individuals have Ownership of
125
What are the 3 types of Joint Accounts?
Community Property w/ Rights of Survivorship (CPWROS) Account
Joint Tenant w/ Right of Survivorship (JTWROS) Account
Tenants in Common (TIC) Account
126
What's a JTWROS Account?
| Joint Tenants w/ Rights of Survivorship
A Joint Account w/ Equal Ownership Interest
127
What are the 2 Benefits of a JTWROS Account?
| Joint Tenants w/ Rights of Survivorship
Bypasses Probate Court
Owner who Survives Inherits 100% of the Account
128
Do JTWROS Accounts incur Estate Taxes?
| Joint Tenants w/ Rights of Survivorship
Yes, when an Owner Dies
129
What's a Tenants in Common (TIC) Account?
| Tenants in Common
A Joint Account w/ Unequal Ownership Interest
130
What happens when one Owner of a TIC Account Dies?
| Tenants in Common
Account Freezes, is marked as Deceased, & Open Orders are Canceled
Paperwork is Gathered (Affidavit of Domicile, Death Certificate, Inheritance Tax Waiver, Will or Trust)
| Their Ownership Interest is governed by State Law, their Will, or Trust
131
What's a CPWROS Account?
| Community Property w/ Rights of Survivorship
A Joint Account w/ Equal Ownership Interest where the Owners have to be Married
132
What's the Benefit of a CPWROS Account?
| Community Property w/ Rights of Survivorship
The Account can avoid Estate Taxes, if the Joint Property is immediately sold after an Owner Dies
133
What's a Qualified Domestic Relations Order (QDRO)?
A Divorce Court Order that Grants an Individual the Right to a portion of a Participant’s Retirement Funds
134
What's Tenancy by the Entirety?
Allows Married Individuals w/ a Joint Account to Own Property as a Legal Entity w/ the Right of Survivorship
135
What's a Transfer On Death (TOD) Designation for a Brokerage Account?
A Designation granted to an Individual Brokerage Account so the Account can bypass Probate Court when the Owner Dies
136
What's a Payable On Death (POD) Designation for a Checking or Savings Account?
A Designation granted to an Individual Checking or Savings Account so the Account can bypass Probate Court when the Owner Dies
137
What's the Employee Retirement Income Security Act (ERISA)?
A Federal Law (enacted in 1974) that protects the Retirement Assets of American Workers
138
What's ERISA §404(c)?
| Employee Retirement Income Security Act
Provides Liability protection to Fiduciaries of Defined-Contribution Retirement Plans
139
What are the 3 Chapters of ERISA §404(c)?
| Employee Retirement Income Security Act
Investment Choice
Investment Communication
Investment Control
140
What's the ERISA §404(c) Investment Choice chapter about?
| Employee Retirement Income Security Act
Providing Participants w/ a Broad Range of Investment Options
141
What are the 3 Investment Options under the ERISA §404(c) Investment Choice chapter?
| Employee Retirement Income Security Act
3 Asset Classes w/ different Risk & Return
Bonds
Money-Market Fund
Stocks
142
What's the Purpose of the ERISA §404(c) Investment Choice chapter?
| Employee Retirement Income Security Act
To ▲ Diversification & ▼ Risk for the Participant
143
What are the 3 requirements of the ERISA §404(c) Investment Control chapter?
| Employee Retirement Income Security Act
Adequate Investment Info Provided
Min. Investment Changes of Once per Quarter
Investment Voting Rights Granted
144
What's an Investment Policy Statement (IPS) as defined by ERISA?
| Employee Retirement Income Security Act
A Formal Document between a Portfolio Manager & a Client that Outlines how Investment Options are Selected, Monitored, & Evaluated
145
What's a Prohibited Transaction?
Transactions that a Fiduciary can’t execute w/ a ‘Party of Interest’ if they are in violation of ERISA
| Employee Retirement Income Security Act
146
Who's a Party of Interest as defined by ERISA?
| Employee Retirement Income Security Act
Employer or Union sponsoring a Plan
Service Provider to a Plan
Affiliates of ^^^
147
What are the 5 types of Prohibited Transactions as defined by ERISA?
| Employee Retirement Income Security Act
Any Transfer to, or use of Plan Assets by or for the benefit of the Party of Interest
Any Sale, Exchange or Leasing of Property
Causing a Plan to Acquire & Retain Employer Securities or Property
Furnishing of Goods, Services or Facilities
Lending of $$$ or other extension of Credit
| ". . . in violation of ERISA"
148
Who's a Fiduciary as defined by ERISA §404(c)?
| Employee Retirement Income Security Act
A Person or Entity responsible for managing a Retirement Plan’s Assets in the Best Interest of the Plan Participants & Beneficiaries
149
What's the Capital Market Theory?
The Theory that the purchase & sale of Long-Term Debt & Equity are essential to Economic Growth
150
What's the Capital Asset Pricing Model (CAPM)?
The Risk-Adjusted Expected Return on an Investment that has known historical RoR’s
151
What's the CAPM Equation?
| Risk-Adjusted Return
152
What's Modern Portfolio Theory (MPT)?
The Theory that a Managed Portfolio should achieve Optimum Returns given the inherent Risk of the Portfolio Holdings
153
What's the Efficient Frontier?
A Portfolio's relationship between Risk & Expected Return
154
What's the Efficient Market Hypothesis (EMH)
| Efficient Market Theory (EMT)
A Hypothesis that Share Prices reflect all info & consistent Alpha generation is impossible, thus investing in a low-cost, Passive Portfolio is best
155
What are the 3 elements of the EMH?
| Efficient Market Hypothesis
Strong Efficiency
Semi-Strong Efficiency
Weak Efficiency
156
What's an EMH Strong Efficiency?
| Efficient Market Hypothesis
All Info (Public or Private) in a Market is accounted for in the Stock Price
157
What's an EMH Semi-Strong Efficiency?
| Efficient Market Hypothesis
All Public Info is accounted for in the Stock Price & Neither Fundamental nor Technical Analysis can achieve superior gains
158
What's an EMH Weak Efficiency?
| Efficient Market Hypothesis
All past Stock Prices are reflected in today’s Stock Price & Technical Analysis can’t achieve superior gains
159
What's Keynesian Theory?
The Theory that Government Intervention Stabilizes an Economy through Expansionary Fiscal Policy to Achieve full Employment & Price Stability
160
What's Supply Side Economics?
| Reagonomics
The Theory that increasing the Supply of Goods & Services is the Engine of Economic Growth & Tax Cuts encourage Job Creation, Business Expansion, & Entrepreneurial Activity
161
What are the 3 Primary Asset Classes?
Cash & Cash Equivalents
Equity (Stocks)
Fixed Income Securities (Bonds)
162
What are the 2 types of Asset Allocation Strategies?
Strategic Asset Allocation
Tactical Asset Allocation
163
What's Strategic Asset Allocation?
A buy-and-hold Portfolio Strategy that periodically Rebalances to optimize ROA & Client Profile
164
What's Tactical Asset Allocation?
| Market Timing
An Active Trading Portfolio Strategy that temporarily Rebalances to optimize ROA & Client Profile in the Short-Term, then Rebalances back to the Long-Term Allocation Targets immediately afterwards
165
What's Portfolio Rebalancing?
The adjustment of a Portfolio’s % Investment in each Asset Class
166
What's an Investment Style?
The way a Portfolio Manager or Investor manages & optimizes a Portfolio
167
What's an Active Trading Style?
Actively buying & selling individual Stocks & Assets in an attempt to beat the performance of an Index
168
What's a Passive Trading Style?
| Index Fund Management, Indexing, Index Investing
Replicating the Return of a particular Market Index or Benchmark
169
What's a Growth Trading Style?
Investing in Growth Stocks w/ ▲ P/E & P/B Ratios
170
What's a Growth Stock?
Young, Small, Emerging Firms w/ ▲ Expected RoRs
171
What's a Value Trading Style?
Investing in Stocks that appear to be Trading for less than their Intrinsic or Book Value w/ ▼ P/E & P/B Ratios
172
What's an Income-Oriented Trading Style?
Investing to generate & maintain an Income by prioritizing Fixed-Income Securities or Equities that issue Dividends
173
What's a Tax-Efficient Trading Style?
Investing in a way that Taxes are Minimized, even at the Expense of ▲ Returns
174
What's the Time Weighted Return?
| Geometric Mean Return
The CAGR of a Portfolio during a specific Time Period that eliminates the distorting effects on growth rates created by CF’s
175
What's an Annualized Return?
The Annual Return of an Investment
176
What's the Total Return of an Investment?
| Expressed as a Cumulative or Annualized Total Return
The entire Return an Investment earns over a Holding Period
177
What are the 3 Components of a Total Return of an Investment?
Changes in Market Value
Compounding
Dividend/Interest Distributions Reinvested
178
What's an Expected Return?
The amount of $$$ an Investor expects to receive from an Investment
179
What's a Rate of Return (RoR)?
| Nominal Rate
The Net Gain or Loss of an Investment over a specific time period, expressed as a % of the Investment’s Initial Cost
180
What's the Real RoR?
| Inflation Adjusted Return
The Annual % of Profit Earned on an Investment, adjusted for Inflation
181
What's an After-Tax Return?
| Tax-Free Yield
The % ROI after Taxes have been paid
182
What's the After-Tax Return Equation?
| Tax-Free Yield
183
What's the Taxable Yield Equation?
| Tax Equivalent Yield
184
What's an Overall Market?
| Benchmark or Indexes
A specific Market Sector that can be used for Portfolio Performance Comparisons
185
What are the 2 types of Overall Markets?
| Benchmark or Indexes
Broad
Narrow
186
What are the 4 Common Indexes?
| Overall Markets or Benchmarks
Standard & Poor’s (S&P) 500
MSCI
Russel 2000
Wilshire 5000
187
What's the Standard & Poor (S&P) 500?
An Index of 500 Large-Cap Domestic & International Stocks
188
What's the MSCI?
An Index of 1,600+ Developed World Stocks
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What's the Russel 2000?
An Index of 2,000 Small-Cap Domestic Stocks
190
What's the Wilshire 5000?
An Index of 5,000 Domestic Stocks
191
What's the Rule of 72?
How long it takes an Investment to Double at a given Compound I/R
192
What are the Rule of 72 Equations?
193
What's Diversification?
Investing in Assets, Securities, and Industries that aren’t correlated to mitigate Risk
194
What's Sector Rotation?
A Tactical Asset Allocation Strategy used to Rebalance a Portfolio to a favorable Market Sector based on Economic Indicators & Conditions
195
What's Dollar-Cost Averaging?
| Constant Dollar Plan
Systematically investing equal amounts of $$$ in a Security at regular intervals regardless of Stock Price
196
What are the Benefits of Dollar-Cost Averaging?
| Constant Dollar Plan
May ▼ Avg. Cost/Share
May ▼ Portfolio Volatility
▼ Reliance on Market Timing of Lump-Sum Investments
197
What's a Capital Goal Strategy?
Investing to achieve Capital Goals within a defined time period by ▼ Risk & ▲ Liquidity
198
What's Leveraging?
Borrowing $$$ to Invest w/
199
What's Volatility?
A measure of the Dispersion of a dataset over time
200
What's Volatility Management?
Managing a Portfolio to a Constant Volatility rather than a specific Asset Allocation using Beta
201
What's Ordinary Income Tax?
Any Earned Income that’s Taxable at the IRS Ordinary Income Rates
202
Which Assets incur Ordinary Income Taxes?
Bond Interest
Dividends
Short-Term Capital Gains (1- yr)
203
What's Capital Gains Tax?
IRS Taxes of the Net Gain of Assets Sold or Withdrawn
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What are the 2 types of Capital Gains Tax?
Short-Term (1- yr)
Long-Term (1+ yr)
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How are Short-Term Capital Gains Taxed?
As Ordinary Income
206
How are Long-Term Capital Gains Taxed?
At Preferential Tax Rates (0%, 15% or 20%)
207
What's Federal Income Tax?
Taxes charged by the Federal Gov. based on your AGI to Fund Federal Programs
| Adjusted Gross Income
208
What's the Income-Related Monthly Adjustment Amount (IRMAA)?
Additional Federal Taxes charged to Individuals w/ ▲ MAGI
| Modified Adjusted Gross Income
209
What's Alternative Minimum Tax (AMT)?
An Alternate Income Tax Liability for Individuals w/ AMT Preference Items
210
What are the 2 AMT Preference Items?
Interest earned from:
Incentive Stock Options (ISO)
Industrial Revenue Bond (IDR)
211
What are the 3 Types of Income?
Active Income
Passive Income
Portfolio Income
212
What's Active Income?
Income earned for performing a Service
213
What are the 5 types of Active Income?
Commissions
Fees
Salaries
Tips
Wages
214
What's Passive Income?
Income generated by someone other than an Employer or Contractor
215
What are the 4 types of Passive Income Generators (PIGs)?
Credit Card Rewards
Limited Partnership (LP)
Rental Property
Savings Account Interest
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What are Passive Activity Losses (PALs)?
Losses derived from PIGs that can only be Offset by Passive Income Profits
217
What's Portfolio Income?
Income earned from Investments, Dividends, Interest, Capital Gains, & Royalties from Investment Property
218
Which Corporations incur a Corporate Tax Rate?
Only C Corporations
219
What are Estate Taxes?
Taxes incurred on Assets of an Individual(s) who Died that are above a Threshold
220
What are the Estate Tax 2023 Exemptions?
Single Exemptions: $12.92M
Married Exemptions: $25.84M
221
Are the Estate & Gift Tax Exemptions Portable for Married Couples?
Yes, when a Partner dies, the Living Partner still qualifies for the Married Exemption Limits
222
Are Securities Donated to Charity Tax-Deductible?
Yes, but only if the Security was held for 1+ Year
223
What's an Investors Cost Basis?
The Original Purchase Price of each set of Shares of a Security incl. Sales Charges
224
What happens to an Investor's Cost Basis when they Sell Shares?
They must Designate to sell Shares using LIFO or FIFO
225
What happens if an Investor Sells Shares w/out Designating their Cost Basis?
IRS charges Capital Gains Taxes based on FIFO (which is ▲)
226
What's a Beneficiaries Step-Up/Down Basis?
The Cost Basis of Inherited Securities
227
How does the IRS Tax Inherited Securities using Step-Up/Down Basis?
The IRS charges Capital Gains Taxes based on the Fair Market Value (or NAV for Mutual Funds) of those Securities on the Day of the Deceased’s Death
