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32 Cards in this Set
- Front
- Back
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What are the 6 parameters for determining asset allocation?
RTLMTD |
1. Risk Tolerance
2. Time Horizon 3. Liquidity 4. Marketability - How quickly can you convert that portion of the portfolio into cash. 5. Tax Consequences 6. Diversification |
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What are the 7 budget steps?
EAS CSPC |
Pre-step: Gather resources.
1. Establish reasonable goals + objectives 2. Analyze current conditions 3. Select appropriate budget forms 4. Client Forecasts 5. Set up monthly budget 6. Prepare a 12 month forecast 7. Compare and Contrast -actual to forecast |
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5 Important Areas of Financial Statement Analysis -
SCCAS |
1. Short-term liquidity.
2. Cash Flow Statement - Income Side 3. Capital and Long Term Solvency 4. Asset Development 5. Short term performance |
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Insurance - 6 things we are doing/ looking for:
MGD PDC |
1. Monitor
2. Gaps 3. Duplication 4. Policy limits 5. Dependent Coverage 6. Cost - What are they paying, who are they paying it to. |
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6 Major Types of Insurance:
LHDHAP |
1. Life Insurance
- Term - Whole Life / Cash Value 2. Health Insurance 3. Disability Insurance 4. Homeowner's Insurance 5. Auto Insurance 6. Professional Liability |
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Why is a GO bond superior to a bond tied to a general revenue project?
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The GO stands for General Obligation, as the city/municipality has to pay for it out of general funds.
If it is tied to a revenue project, then the revenue project must be completed and generate income in order for you to receive any of your interest income. |
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How can you reduce insurance costs?
Note: I would know 3 or 4...there are too many for him to ask to know all of them. |
1. Raise the deductible
2. Earn discounts 3. Compare offers. 4. Reduce life insurance coverage later in life. 5. Avoid credit life insurance 6. Extend disability waiting period. 7. Self-Insurance 8. Dread-disease riders 9. Pay premium on an annual, rather on quarterly or monthly basis. |
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2 purposes of Life Insurance:
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1. Protection.
2. building block for investments. |
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What amount of insurance is recommended?
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Simple Calculation:
1. 5X Salary 2. Others say 1M minimum. Consider other factors, this is just baseline, rule of thumb stuff. |
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6 Insurance Needs Analysis Factors:
NIA DDS |
1. Non-Working Spouse
2. Investments 3. Ages of Children 4. Dual earners 5. Dependent parents 6. Special needs situations |
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5 Insurance Ratings Companies:
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1. A.M. Best - underwriting, expense control
2. S+P - claims paying solvency 3. Fitch - corporate debt, RE, asset backed financing, claims paying 4. Moody's - 5. the Street - ability to meet commitments |
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Term Insurance - Features
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1. Pure Protection - nothing but insurance
2. No cash value 3. Least expensive 4. For a specified # of years 5. Renewable - can automatically renew 6. Insurability |
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Permanent / Whole Life - Benefits Features
PICIBM |
1. Protection
2. Investment element 3. Cash Value 4. Investment vehicle 5. Borrow against it (you can) 6. Minimum earnings rate |
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Why for tax purposes do you not want to hold incidents of ownership?
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If you die holding incidents of ownership, then the insurance policy can be roped in with the estate for taxable purposes.
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What do incidents of ownership include?
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- Power to change beneficiaries
- Any modifications |
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5 Settlement options for Life Insurance -
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1. Lump- Sum Payment
2. Interest option - proceeds remain with insurer - protects principal 3. Fixed amount - A certain amount of $ for a certain amount of years. 4. Fixed period - all proceeds of policy will be paid out over a # of years 5. Income for life |
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7 Planning Issues:
Note - Probably low priority, or general knowledge question for the test. |
1. Current Market Trends
2. Manage Expectations of a client 3. Clients will continue to grow their portfolios 4. Inheritances - 17T wealth transfer 5. Retirement plan issues -Roth -Special Dividend Tax -Gov't control over retirement 6. Automatic Investment Vehicles - Lifestyle funds - etc 7. Increased Demand for Professional Advice |
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Modern Portfolio Theory:
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For every risk level, there is a perfect frontier ---
Essentially, for every level of risk, there is a perfect equilibrium of profit and risk. |
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2 General Types of Risk:
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Systematic: portfolio variability, portion related to markets
Unsystematic: variability not related to to markets, but to individual investments. |
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Factors in Evaluating Systematic Risk:
MIPS |
1. Market Capitalization - Market value of outstanding shares
2. Interest Rate Risk - Mainly affects bond markets 3. Price Level Risk - purchasing power 4. Social Regulatory Risk - government intervention etc. |
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Unsystematic Risks:
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1. Functional or Business Risk -deals with individual investments
-competition, product demand, resources available, not connected to broader issues 2. Financial Risk - debt, management, individual securities. |
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4 Traditional Asset Classes:
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1. Cash
2. Stock 3. Bonds 4. RE |
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6 New School Asset Classes:
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1. Cash
2. Stocks 3. Bonds 4. Real Estate 5. Commodities 6. Alternative Investments |
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What is formula for determining the effective rate of return (Tax equivalent yield) on a tax-free bond?
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Interest rate of TF bond / 1 - Tax Bracket rate.
Example: 4% GO Bond, 35% tax bracket: .04 /(1-.35) = .04/.65 = 6.15% Adjusted |
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4 Main Types of Portfolio -
Investment Objectives/Strategies: S IS P AT |
1. Safety of Principal
2.Income Stability - Long term, greater than 5 years 3.Protection of Purchasing Power - Inflation protected assets 4.After-Tax Returns |
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Planner's Role: 4 Steps:
DPED |
1.Define Client Investment Experience + Objective
2. Project Investment Requirements 3.Evaluate Current Holdings 4.Determine appropriate asset allocation 5. (My added step) Monitor and adjust |
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How often is NAV valued and priced in Mutual Funds?
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Once per day, generally at close of business.
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What is the formula for calculating Net Asset Value?
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Total Value of Holdings / Shares
= NAV |
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How are ETF's valued?
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They fluctuate, just like the stock market. Constantly revalued while the market is open.
They can be purchased at a premium or discount, just like stock. Used to increase risk, or diversify assets. |
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What are the 3 factors that are important to good returns?
MSSA Which one is the most important? |
1.Market timing - allocation of assets based on market conditions - risky
2. Security Selection - AAPL over HP, or Exxon over BP 3.Asset allocation - 98% of returns are based on asset allocation |
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Explain Modern Portfolio Theory:
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For every level of return, there is one portfolio that offers the lowest level of risk. There is also one investment that offers a high level of return.
By buying both, or diversifying, you are attempting to mitigate risk, and increase returns...which gives you the midpoint, or perfect blend for both assets. Add a low or no risk investment, and you can add an extremely risky investment on the high end. |
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Ways to buy foreign stock:
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1.) Mutual Fund
2.) ADR's -American Depository Receipt |
