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Series 66 Investment Recommendations Definitions

Terms in this set (120)

Joint Tenants with Rights of Survivorship (JTWROS)
Account commonly used by married couples, upon death of a spouse the interest passes automatically to the surviving spouse
Tenants in Common
Upon the death of one of the individuals involved, that person's interest in the account passes to his or her estate and not to the surviving member of the account (thought of as freely transferrable)
Tenants by Entirety
Co-ownership form that can only be used by married couples.
Surviving spouse has right of survivorship.
Neither spouse may sell, gift, devise, or otherwise transfer property without permission of other spouse.
Sole Proprietorship
business owned by an individual, Simplest way of doing business. No or low start up and maintenance. losses may be used to offset income for tax purposes

Disadvantages: Unlimited personal liability
Partnership
Two or more individuals invest in a business venture. Partnership has limited life. Allows for pass through taxation
General partnership
A type of partnership where two or more individuals share in the profits, losses, and liability. Limited Life. They are actively managing the business
Trust
An arrangement in which title to property is held by one person (a trustee) for the benefit of another (a beneficiary).
First or Income Beneficiaries
In a trust the person who receives the interest and other income from the property
Remainderman or Second Beneficiaries
In a trust the person who generally receives the property upon the passing of the first beneficiary
Both the first beneficiaries and the remainderman at the same time
A trustee must consider the needs of...
Attorneys
Who drafts trust documents?
Revocable trust
What is a trust that is changeable
Irrevocable Trust
What is a trust that cannot be changed
Living Trust
What is a trust set up that is either revocable or irrevocable and is set up while the grantor is alive
Testamentary Trust
What is a trust that is created from a will
To the grantor at the grantor's tax rate
How is the income of a revocable trust taxed
At the trust's tax rate
How is the income from an irrevocable trust taxed?
Form K-1
Beneficiaries who receive income from a trust or estate file...
Estate
The net worth of any person at any point in time. Can include all property (real and personal)
9 months
How long after the decedent's death must the estate's executor file IRS Form 706, The Federal Estate Tax Return
Per Stirpes
Type of will where the children of beneficiaries receive what their parents would have gotten if they die
Per Capita
Type of will where the distributions stop after those listed (does not follow bloodline)
Contingent Beneficiary
An alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary cannot or will not accept the bequest
Fiduciary
A person vested with legal rights and powers to be exercised for the benefit of another person
Long term goals (10+ years)
Comfortable retirement at a certain age and College education for a child or grandchild are examples of
Medium Term Goals (3-10 years)
Purchase of first or second home, Starting a business, and Care of elderly parents are examples of:
Short term goals (Less than 3 years)
Purchasing a new car, and a family vacation would be examples of...
Investment Time Horizon
The length of time until you need to liquidate an investment for a specific goal
62
What is the earliest age you can receive benefits from Social Security
65, 66, 67
What ages are you first eligible to receive full benefits from Social Security
10 years (40 quarters)
How long do you have to work to be eligible for Social Security
QDRO (Qualified Domestic Relations Order)
A domestic relations order issued by a state court that is part of property division in a divorce or legal separation. Splits a retirement plan or pension plan by recognizing joint marital ownership interest in the plan. This can include child support, and alimony
Name and last known address of plan participant and each payee
Name of each plan to which the order applies
Dollar amount or % of benefit to be paid
# of payments or time period
A QDRO must contain all of the following
A plan to provide an alternate payee or participant with any type of benefit prohibited under the plan
A plan to provide for increased benefits
A QDRO must not contain
Anchoring
Refers to bias investors exhibit when they rely too much on a specific piece of information
Long Term Capital Gains

15% tax rate
Realized profits that are earned on assets held for 12 months plus 1 day longer. And what is tax Rate?
Short Term Capital Gains

Ordinary Income Tax Rate
Realized profits that are earned on assets held for 12 months or less. And what is tax rate
Market Order
An order to buy or sell a security at the best price available when the order reaches the marketplace
Limit Order
An order to buy or sell a security at a specific price or better
Stop Order
Order from a customer that takes place from a customer that becomes a market order if a trade takes place at or through the price stated. Used to protect a profit from an existing position
Stop Loss
An order used to unwind a position
Buy Stop
Order used to protect a profit on a short stock position
Sell Stop
Order used to protect a profit on a long stock position
Broker
Acts in an agency capacity by bringing together buyers and sellers of securities. Charges a commission (ABC)
Dealer
Acts in a principal capacity by buying or selling securities from the firm's own inventory account. Charges a Mark up or Mark Down
OTC Market
Unlisted market defined as all securities trades that take place off the floor of an exchange. Securities are traded by market makers. Negotiated Market
Exchange Market
An auction market where buyers and sellers execute trades.
High Frequency Trading (HFTs)
High speed systems to monitor market data and submit large numbers of orders to the markets. Used primarily for short term trades
Program Trading
Trading based on signals from computer programs, usually entered directly from the trader's computer into the market's computer system and executred automatically. Involves at least 15 different stocks with a total value above $1 million
Dark Pools
Electronic trading platforms run by large investment banks and hedge funds for institutional investors to trade stock privately and anonymously off the floor of an exchange
Dark Pools
Trading executes at the midpoint between the bid and ask price
Does not move the price of stock being traded
Real Return
Refers to total returns adjusted for inflation
Dispersion
Illustrates a statistical range of potential returns for an investment or a portfolio's returns
Time Value of Money
The concept states that the value of a dollar today will be higher than the value of that same value in the future due to inflation and potential appreciation received from investing
Future Value / Compounding
Generally used to determine what the value of a fixed sum of money invested today at a specific interest rate will be worth at a future date taking into consideration compounding
Present Value / Discounting
Used to determine how much money would have to be invested today at a specific interest rate to equal a fixed amount of money needed in the future
Discounted Cash Flow Methods (DCF
A means of evaluating investments using the concept of discounting (present value). Analysts use this to evaluate an investment's inflows and outflows as well as the expected cost of capital related to the investment to determine the present value (NPV) of the project and IRR
Net Present Value (NPV)
A form of DCF which uses discounting to find the present value of inflows and outflows for each year of a given investment
to allow comparison of the present value of the investment, discounted in today's dollars, and the cost of the investment today
What is the goal of NPV?
Positive: Investment will be Profitable
Negative: Investment will lose money
0: investment will have no gains or losses
What would be the result of a Positive, Negative, and return of 0 for NPV?
Internal Rate of Return (IRR)
aka Dollar Weighted Return
A form of DCF that uses discounting to find the present value of inflows and outflows for each year of a given investment, then sets the equation equal to zero in order to find the rate of return which gets the investment to a break even
Holding Period Rate of Return (HPR)
A measurement of return on an investment calculated over the period of time during which the investment was held
Risk Free Rate of Return
Rate of return on a 3 month Treasury Bill
Risk Premium
Term used to describe the additional return an investor can expect for taking risk above and beyond risk free investments
Beta
measure of the volatility of this particular stock's price in relation or comparison to a benchmark such as an index or the market as a whole
Alpha
Gives the investor an idea of how much an investment performs relative to the amount of risk taken. Uses fundamentals of a specific company. Referred to as the excess return relative to the performance of a benchmark index
Standard Deviation
Measure of Volatility of a security or portfolio from the expected return based on past performance.
Realized Return / Realized Profit or Loss
Amount of profit or loss as a result of the sale of a security
Inflation Adjusted / Real Return / Real Interest Rate
Total or nominal return on an investment less the rate of inflation
Expected Return / Mean Return / Expected Annual Return
Estimates the return on an investment based on certain scenarios and weighs these estimates based on the probability of the occurrence of each scenario
Sharpe Ratio
Used to distinguish how well the return of an asset compensates the investor for the amount of risk taken. Measure of the risk-adjusted return relative to a portfolio's volatility
Time-Weighted Return
Investment Performance measure in which the inflow and outflow of money are eliminated. Used to compare portfolio manager's performance against a benchmark
Dollar Weighted Return
Measures the change in the dollar value of a portfolio to Total Return
Dividend Discount Model
A tool to determine the price at which a common stock should be trading considering the discounted value of potential future dividends
Rule of 72
Used to give estimates of how long it will take for an investor to double their money given a specific rate of return
Current Yield on a Bond
Annual Interest / Current Market Price
Capital Asset Pricing Model (CAPM)
A model that measures expected returns in relation to the amount of risk that an investment carries
Modern Portfolio Theory
investment theory that attempts to optimize expected returns for a portfolio for a given level of risk. Places more value on the overall portfolio rather than individual investments
Efficient Frontier
Represents a set of or group of portfolios that will provide the highest return at each level of risk incurred
Efficient Market Hypothesis
Investment theory that states it is impossible to consistently beat the market
Growth Investors
Investors who focus on companies with above average earnings
Growth Stocks
Tend to have higher than average future earnings potential and therefore trade with a higher P/E ratio. Investor is primarily concerned with earnings
Value Investors
Investors who focus on companies which are undervalued and have low P/E ratios
Value Stocks
Pay regular dividends, have a low Price to Book ratio and have little or no debt. Have a high yield with a low P/E
Passive Asset Allocation
A form of asset allocation where the portfolio is set and is rebalanced at predetermined intervals
Strategic Asset Allocation
The assets in a portfolio over the long term are balanced and generally kept at an assigned balance
Barbell Portfolios
A portfolio of bonds with concentrations of short and long term maturities but very few mid-range maturities. The portfolio is adjusted to maintain the long and short distributions.
Indexing
Mirroring a specific benchmark or index and trying to replicate the returns
Market Capitilization
Current market price per share times the number of shares outstanding
Buy & Hold Strategy
Portfolio management strategy in which the investor designs a portfolio and purchases appropriate investments with anticipation of appreciation and income
Dollar Cost Averaging
Investing a fixed sum of money at regular intervals regardless of market price
Contrarian Investors
Investors who do the opposite of what most investors are doing at any particular time
Monte Carlo Simulation
A simulation that runs thousands of chance scenarios to produce probable outcomes involving a number of random variables. It creates a frequency distribution table based on a wide range of potential outcomes.
Scaling In
securities are purchased in increments to achieve any overall total goal to attain an average purchase price as the value of the security is declining
Laddering In
A strategy which involves the purchase of fixed income securities with different coupon rates and different maturities in an attempt to reduce interest rate risk and re-investment risk
Style Drift
is when a portfolio manager strays from his original stated style objective
Asset Classes
Cash, Stocks, Bonds, Precious Metals, Real estate, etc.
Sectors
Defense, Utilities, Durable Goods, Manufacturing, etc.
Market Capitalization
Small Cap, Mid Cap, Large Cap, etc.
Markets
NYSE, OTC, AMEX, CBOE, etc.
Industrials
When the economy is expanding the IA should invest in
Consumer Staples
When the market is Peaking the IA should invest in
Utilities
When the market is contracting the IA should invest in
Technology and Industrials
When the market is trough IA should invest in
Fundamental Analysis
Focuses on the company and its financial statements, management, and products to evaluate whether the stock of the company is properly valued
Technical Analysis
Focuses on market trends, charts and market patterns in an attempt to predict the direction of company's stock price
Moving Average
Average price of a security over a specified amount of time. This is used to smooth price moves and help identify trends
Quantitative Analysis
Focuses on "hard" data only such as revenues, margins, profits, and assets in order to determine value of a stock
Bottom-up-investing
Starts with a company-by-company analysis of individual firms
Top-down investing
Starts with a global outlook, then moves down
Intertial Inflation
The tendency of an inflation rate to remain constant or consistent unless there is a demand shock or supply shock
Manager Tenure
The length of time a portfolio manager has managed a particular mutual fund
Current Ratio
current assets/current liabilities
Working Capital
current assets - current liabilities
Acid Test Ratio (Quick Ratio)
Most stringent measure of liquidity
(Current Assets - Inventory) / Current Liabilities
10-Q
the quarterly report that publicly traded companies must file with the SEC
10-K
a comprehensive annual report submitted by a public corporation to the SEC. Typically contains much more detail than the annual shareholder's report
8-K
A report filed for unscheduled material events or corporate changes, Must be filed within 4 business days
Cash Basis Accounting
Accounting method which records revenues when cash is received
Accrual Accounting
Accounting records revenues when earned, and when expenses are recorded when incurred
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