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173 Cards in this Set
- Front
- Back
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What is a mutual fund?
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A fund that is created when a group of people pool their money to purchase a diversified fund that is managed by a fund manager
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what is a 401(k)?
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a seperate trust account set up by your employer
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Why does a 401(k) work?
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1. penalized to remove funds
2. don't see it, don't miss it 3. Someone else does the work |
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What is a significant factor about an index fund?
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It doesn't require a management fee
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What is a PE ratio?
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A Price Earrning ratio. It is stock divided by earnings per share
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What is a value stock?
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a stock with a low PE ratio
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Modern Portfolio Theory:
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performance of stock market is unpredictable over short term, but predictable over long term. HARRY MARKOWITZ
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Marketplace:
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actual location to go to buy sticks and bonds
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Stock:
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a share in a company, one makes money on interest and possible dividends
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Bond:
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a loan to a company, one makes money on interest solely, and is eventually paid back the loan
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Gain: realized vs unrealized
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unrealized = unsold, realized = sold
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what percentage of index funds outperform mutual fund equivalents?
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72%
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Index fund:
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a mutual fund that is not actively managed and therefore avoids managment fees
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Recommended newsletter?
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Value Line Investment Survey
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What is the highest ranked Co. which Bro. Marsh also suggests one sets up their account at?
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Charles Schwabb
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What are bad investments?
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annuities, investment life insurance
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IRA stands for:
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Individual Retirement Account
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load:
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commission
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Roth IRA:
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an IRA that taxes your money as you put it in, not when it is withdrawn (ideal for those who are in the low tax bracket now but will be in the high tax bracket when they withdraw)
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When is 401(k) taxed?
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When the money is removed
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If you reach your POC, do you need life insurance?
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no ;)
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Mutual Guarantee Associations:
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Insurer of Insurance Companies
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EATS:
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The money a company gives out to shareholders
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When nvestment rates increase...
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bond prices decrease
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When investment rates decrease...
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bond prices increase
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exchange:
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where stocks are changed hands
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what is the advantage of a mutual fund?
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professional management and instant diversification
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allocation:
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diversify yuor TYPES of investing (ie stocks, bonds etc)
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custodial fee:
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fee to have someone watch your fund
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diversification:
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investing in more than one company
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dividends:
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share of a profit (companies are not obligated to give dividends to stock-holders)
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a conservative investment portfolio has...
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more bonds
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what newlsetter ranks other newsletters?
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Hulbert Digest
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how long must a life insurance policy have been in place in order for it to be realized after a suicide?
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2 years
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Term life insurance:
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a specific amount for a specific amount of time
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Cash Value/Investment life insurance:
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= death benefit + the investment
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Why are Cash Value life insurances not recommended?
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High load
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why are annuities bad?
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beacuse it is taxed as interest income
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beneficiary:
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the one who receives the inheritance
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the insured:
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the one whom the life insurance is on
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what does homeowner's insurance generally not cover?
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earthquakes and floods
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what happens after a second insurance claim?
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increased premium :(
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What are the four Federal Income taxes?
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FICA, INCOME, ESTATE, GIFT
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who pays the tax on gift tax?
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the giver
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in regards to the stepped-up basis, there is double taxation on what three things?
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annuities, 401(k), and IRA accounts
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Capital gain:
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change in value when bond/stock is sold
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short-term capital gain tax:
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taxed as orinary income :(
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What are the two type of tuitiontax credit programs offered by the gov't?
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1. Hope/American Opportunity
2. Lifetime Learning *can only use one for one student yearly |
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Hope/American Opportunity:
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- being expanded to 4 years
- maximum yearly credit is $2,500 - partially refundable - no limit on family members - phases out if AGI is so high - parents get the credit if student is their dependent |
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Lifetime Learning:
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- available for all years of post-secondary education
- 20% of amount paid for tuition and fees - amount of credit phases out at higher incomes |
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what is a tax credit?
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a credit that allows you to subtract, dollar-for-dollar, the amount of the credit from your total federal tax income bill
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label section of 1040:
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name and address
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What will happen to your tax return if you donate $3 to the presidential election campaign fund on the 1040?
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nothing
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order of benefits on tax form?
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1. adjustments
2. deductions 3. tax credits |
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What is the best way to avoid being questioned by the IRS?
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1. file on time 2. attach all necessary schedules 3. fill out every from completely 4. double-check your math
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how long should you keep your tax records
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at elast three years
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how long to experts recommend to keep records?
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6 years! bc thats the time thr IRS has to come after you if you underreport by 25% or more
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Records that you should keep indefinitely for tax purposes:
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1. statements documenting retirement account activities
2. Records of your investments 3.home ownership papers 4.Copies of old tax returns |
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what is a makafeke?
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an octupus trap
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what were the four makafekes of our day that President Monson named?
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1. immorality
2. pornography 3. drugs and alcohol 4. excessive debt |
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What does excess debt do?
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crushes self-esteem, ruins relationships, leaves one in desperate circumstances
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a home equity loan is...
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equivalent to a second mortgage
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car insurance is purchased to cover the losses of...
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yourself and those you harm
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Eight tax-free sources of income:
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1. interest earned on bonds issued by a political division
2. Income received from carpooling 3. sell your house after living in it for 2-5 years, excluding up to 250,000 from taxes . tax-free compensation: 4health-coverage, 5life insurance, 6schooling, 7public transportation, 8cafeteria plans 5. |
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THree situations that enable a policy
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1. owner-occupants of private homes
2.tenants of residential premises 3.owners and owner-occupants of condos |
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two requirements for a non-living place such as studio or office:
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1. occupied principally as a dwelling
2. not used for any other business purpose other than the incidental occupancy |
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what percentage do homeowners policies auatomaticly cover your household?
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40%
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cash value coverage
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replaces an item to it's cash value (tv of 6 years)
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replacement cost
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actually reimburses you the amount it will cost to replace the item that was lost
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what will help you decide how much insurance you need and simplifiy claims?
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taking inventory
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what should your home inventory include:
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list item, value, and serial number, along with photo or video
*keep receipts of valuable items in a fireproof place |
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special household items such as jewelry, amera and computer equipment require --
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scheduled personal property endorsement
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paying a higher deductible for insurances...
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gives you a lower monthly premium
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what car is the most costly to insure?
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Nissan GT-R
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why do cares become costly to insure?
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because drivers file frequent and small claims to maintain them
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all drivers of a car model benefit
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when those drivers have a history of few accidents
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when a car is brand-new insureres base insurance off of...
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the price of the car
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cars can have higher insurances rates because of:
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1. history of past drivers
2. nature of the car(is it a high-performance, race car?) 3. price of the car 4. does it inflict a lot of damage on other cars? 5.theft history |
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least expensive car to insure
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hyundai Santa Fe
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what does teh W-4 list?
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all witholding allowance information, including child care expenses and number of dependents- it tells emplyer how much needs to be withhled for federal incom tax
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formula for calculating income tax:
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income-adjustments = agi. AGI - deductions and exemptions = taxable income. Taxable income * tax rate = gross tax liability. gross tax liability - credits = net tax
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six tax brackets:
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10, 15, 25, 28, 33, 35 percent
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what is a capital gain?
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the profit when you sell a capital asset (stocks, bonds, mutual fund shares and r.e.)
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short term gain:
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comes from the sale of property owned for one year or less
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long-term gain:
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comes from the sale of property held longer than one year
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short-term gain tax:
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at minimum tax-rate, as high as 35%
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long-term gain tax:
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0-15%
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holding period:
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the period you hold property before selling it
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capital loss:
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a loss on the sale of capital
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EBIT
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Earnings before interest and taxes
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Eats
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earnings available to the shareholders: not obligated to pay them the dividends
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if expenses increase in a business...
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profits will decrease
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low risk:
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o Cash and cash equivalents (keeping your money under your pillow)
o CDs and U.S. Treasury Bills o Money Market Bank Accounts o Government bonds (treasury notes, savings bonds, treasury bonds) |
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mid risk:
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o High income bonds
o Large/small cap stock o Equity Mutual funds o Real Estate |
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high risk:
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Currency trading
Hedge funds Arbitrage Futures Options-investment that gains value as the investment goes up or down. Way of betting for or against an investment. Buys the right to buy an investment at a certain price. |
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stick with investing, never..
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speculating
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target a what percent return?
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12%
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equity skimming:
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over-appraisal of home and then taking out a high home equity loan
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investment company:
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co. that sells investments
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custodial fee:
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fee to safegaurd and protect the assets
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index: name two
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an average of stocks to see how the overall market is performing
Dow Jones, Standard and Poor's 500 index |
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municipal bonds
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govt bonds other than the fed govt
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international funds
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stock in foreign market
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a good PE ratio:
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17 or 18
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Why would someone pay a higher price for a higher PE when they are assuming more risk?
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The reason is the price of stock is equal to future earnings potential.
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2 major paths in investing:
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1. catastrophe
2.5 critical paths |
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catastrophe:
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armeggedon/disaster:
-stay out of debt -food storage (only 12% of lds have it!) -spend less than income |
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5 critical paths:
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1.diversification, 2. allocation, 3.Historical Pricing models 4. Manage the Managers 5. invest more money
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diversidifcation:
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investing in more than one company
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historical pricing models:
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If you look at the historical pricing of a sector, and the stock is selling for more than the average yield, it’s dangerous to buy. “Buy low, sell high”
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Manage the Managers
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keeping track of who’s managing your money. What are their credentials, expertise, and objectives?
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Invest more money
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Have the goal to continually invest more money. The very best return is how you manage your resources.
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The time will come that gold...
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will hold no comparison in value to a bushel of wheat
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3 Things to Remember
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1.Save Everything (D&C 48:4)
2.If you have more than you need…ask your neighbors to help 3.The time will come when gold will hold no more value than a bushel of what |
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Conservative balances
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a. Lots in bonds
b. 60% bonds c. 30% stocks |
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Balanced
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a. 40% bonds
b. 40% stocks |
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Equity Tilted
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a. 25% bonds
b. 50% stocks |
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Equity
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a.Lots of portfolio in stocks (100%)
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Downside Risk
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Investment losses hurt more than gains help. If someone loses 50% in the market, they have to now have a 100% return to make up for that loss. No such thing as money we can afford to lose. We can’t afford to lose any money.
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is a great company that meets these requirements. They have an index fund that is called a multifund
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Vanguard
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I want to do my own investing, where can I find quality information?
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energy is better spent making more money
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The newsletter that came out number
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No-Load Fund X
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Hulbert..
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started a newsletter that ranked the other investment newsletters. It turned out that the newsletter with the most subscriptions was dead last.
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some money that I’m going to use shortly, where should I put it?
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• If you’re going to use it in two years, last place to put it is the stock market.
• Put it in a CD or a money market • If you have 2 to 5 years, a conservative portfolio, mostly bonds • 5 to 10 years, a balanced portfolio • 8 to 10 years, an aggressive portfolio, mostly stocks |
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The probability of a stock manager beating the stock market
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50%
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What company is the best to set up my account at?
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Credit Union because you are the owner and thus the credit union has less incentive to charge you high fees. Charles Schwabb
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Should I invest in real estate?
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REIT (Real Estate Investment Trust) are good as 5% of your allocation
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Someone tried to sell me an Annuity or Investment Life Insurance Policy, are they a good idea?
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• Insurance is not an investment
• Very high commissions to sales people • Very high penalties if you pull your money out early • Capital Gain Income is taxed as ordinary income • Equity Index annuities- guarantee money won’t go down when stock market goes down. Guarantee is only as good as the company. Not realistic. |
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primary vs secondary
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only time secondary gets it is if primary dies before the insured
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Indemnify
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One cannot profit from a loss
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Insurable interest
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in a position to lose something of value
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No waiting period
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right to receive benefit immediately
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Riders
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add coverage
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life insurance o Exclusions
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War, either declared or undeclared.
Military activity Nuclear related activity Riots or insurrections Deaths as a result from illegal activities Accidents that occur under the influence of alcohol or drugs on other than a prescribed basis Suicide-for two years after policy inception Aviation accidents • Aviation exclusion |
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Riders
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• Waiver of premium-they’ll pay your premiums why you’re disabled
• Accidental Death or dismemberment • Disability income-while you’re disabled, insurance will pay you your income while not working • Automatic premium loan • Family income- in addition to benefit, insurance company will pay your family a certain amount • Mortgage redemption- insurance company will take value of mortgage at time of death and pay it off. |
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term life insurance:
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works like other types of insurance. If you’re paying your premiums, you’ll get a death benefit. You can buy a policy where the premium is guaranteed for a certain amount of time to stay the same.
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Why to avoid cash value life insurance
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o Large lapse rate-very behaviorally inefficient. Within the first 5 years, 80% of all policies are cancelled.
o Usually a 20 to 25 years surrender penalty-If you cancel before twenty years, you’ll pay a large penalty. o Expensive o Objective Advisors Clark Howard, Jonathon Pond, Jane Bryan Quinn o High expenses-will underperform the rest of the market o Rarely does actual investment performance match what companies claim |
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Insurances to avoid
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• Accidental death and dismemberment-only small percentage of people die in accidents. No suicide coverage in the policy
• Trip Insurance-covers you while you fly • Cancer coverage • Pre need funeral expense- very expensive relative to other types of insurance |
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Elimination period
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time between purchase of policy and payment of a claim
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o Probationary period
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time between onset of sickness or illness to payment of claim
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Maximum benefits
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dollar-limit of benefits
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MULCE!
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M-Medical payments to cover yourself in case of an accident. Most people don’t select this because health insurance does the same.
U-Uninsured or Underinsured motorist. Every state requires automobile owners to have insurance. You can purchase insurance that covers you if an uninsured or underinsured motorist runs into you. L-Liability. Medical and property damage of the other driver. If you have a cheap car, really not worth it to insure the damage of your own car. Therefore, liability only insurance allows you to insure you in case you damage another car. 100/300/50. 100 refers to the medical insurance they provide for person. The 300 is the total amount they will provide. The 50 is how much they’d pay to repair the other car. (Each of the three is in thousands: 100,000,300,000,50,000) C-Collision or comprehensive. If you have a cheap car, really not worth it to insure the damage of your own car. Therefore, liability only insurance allows you to insure you in case you damage another car. E-Emergency Road Service. |
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Homeowners Insurance
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o Liability-individuals injured while on your property. Make sure contractors who perform work on your property are properly insured.
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Renters Insurance
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• Very good idea
• Protects all of your personal assets in your unit • Very inexpensive • Often renter’s insurance will be provided by a company free if you have another policy with them. • Does not cover the structure • Everyone should have renter’s insurance |
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Umbrella Coverage
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You may have an accident that quickly exhausts your automobile policy
• Doubles or triples the coverage of a home owner policy or automobile policy • Can include other types of coverage o Slander |
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A greater tax is
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the tax on your time, the wasting of it
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Four Federal Transfer Taxes
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o Income Tax
o F.I.C.A.-Social Security Tax-Most Americans pay more FICA tax than income tax (75%) o Estate Tax o Gift Tax-If you give too much to someone, you have to pay a tax on the gift |
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Second section 1040
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list dependents
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• Third section 1040
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add up sources of income
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• Fourth section 1040
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contains adjustments to income
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2nd Page fisrt section 1040
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includes deductions
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Which one leaves more money in the taxpayer’s pocket, a tax deduction, or a tax credit??
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A tax credit leaves more money in the taxpayer’s pocket. The reason is that a credit is a dollar for dollar reduction in tax.
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Which is worth more to you, an adjustment to income, a deduction, credits above the line, or credits below the line??
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The answer is credits below the line.
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Marginal Tax Rate
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A progressive form of tax. Amount of tax you pay increases as your income increases. The first tax bracket is 10% up to $15,565. When you earn one dollar over that, you’re taxed at 10% on the $15,656 and then taxed at 15% on the additional dollar. It is stupid to say that you don’t want to earn more money because you’ll lose more money through taxes. You’re only taxed more on the money that exceeds the previous bracket. You always want to earn more money
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Capital Gains Tax
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If your highest marginal tax bracket is 10% to 15% and you get capital gains, you only have to pay 5% on those capital gains. If your highest marginal tax bracket is anything else, you pay 15% in capital gains. Many people believe that low taxes on capital gains encourage people to invest.
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5. Mutual Fund
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b. Interest earned in the fund is taxed as ordinary income
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0 tax if you die in 2010
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$3,500,000
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• Estate Tax
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o Currently $3,500,000, 0 tax if you die in 2010
o It is the estate’s responsibility to pay the tax o Use form 706 |
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• Gift Tax
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o No tax if under $12,000 per year
o Also applies to non cash gifts (like cars or houses) o Donor responsible to pay o Form 799 o Prizes you win on game shows DO need to be taxed (you need to report it on your income tax and social security tax) |
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• Social Security (FICA)
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o Employer withholds it from your earnings
o If you’re self employed (sole proprietorship) you report FICA tax on a schedule SE form |
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Schedule B
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• Form where you report interest and dividends form investments
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Schedule D
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• Form where you report capital gains and losses
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Schedule C
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• If you’re self employed (sole proprietorship), this is the form where you report your income, expenses, and profit.
• A business expense is worth more in your pocket than an itemized deduction because if it’s a business expense, you save federal, state, and FICA tax whereas with an itemized deduction you only save Federal and State |
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Personal Capital assets
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• If it’s a personal capital asset, you must report any gain in the value of the asset
• If the asset gains value, you do have to report and pay tax on the increase |
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Capital Gains Tax
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• Only two brackets, 5% and 15%
• Short term capital gain (bought and sold asset in less than one year). These are taxed as ordinary income • Long term capital gain (asset bought and held for more than one year) These are taxed as capital gains • Capital loss (an overall negative return) o You can only report $3,000 of capital loss per year |
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Like-Kind exchange
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• For some assets, you can exchange one for another and not pay tax
• The three like-kind exchanges are: o Real Estate o Business assets o Annuity-life insurance • Stocks, bonds, mutual funds, etc, don’t qualify for like-kind exchanges |
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IRA or 401(k) Transfers
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• No tax if “trustee to trustee” transfer
• If it’s an IRA, you can do a 60 day rollover. You take the money out, and then you have 60 days to invest it again without any tax. |
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Borrowed Money
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• What if you borrow $300,000 to buy a home? Do you have to pay tax on that $300,000? No.
• You never pay tax on borrowed money • Forgiven debt becomes taxable income |
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Life insurance death benefit
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• You don’t pay any income tax on death benefits
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HSA (Health Savings Accounts)
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• Contributions
o No federal ,income, States, FICA tax |
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Real Estate Depreciation
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• Non-cash expense
• You can deduct the depreciation on an investment home (not the land, but the building) |
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Business Expense
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• If you use the item for business purposes, you can deduct the entire cost of the expense
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If you can elect to receive a tax credit before the line, adjustment to income deduction, tax credit after the line, itemized deduction, or business deduction. Which one leaves the most money in your pocket? (Ranked from best to least)
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1. Tax credit “after the line”
2. Tax credit “before the line” 3. Business Expense 4. Adjustment to income deduction 5. Itemized deduction |
